Correlation Between Nasdaq-100(r) and Telecommunications

Can any of the company-specific risk be diversified away by investing in both Nasdaq-100(r) and Telecommunications at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Nasdaq-100(r) and Telecommunications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nasdaq 100 2x Strategy and Telecommunications Fund Class, you can compare the effects of market volatilities on Nasdaq-100(r) and Telecommunications and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Nasdaq-100(r) with a short position of Telecommunications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq-100(r) and Telecommunications.

Diversification Opportunities for Nasdaq-100(r) and Telecommunications

0.77

Correlation Coefficient

Nasdaq-100(r)  Telecommunications

Poor diversification

The 3 months correlation between Nasdaq-100(r) and Telecommunications is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and Telecommunications Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telecommunications and Nasdaq-100(r) is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Nasdaq 100 2x Strategy are associated (or correlated) with Telecommunications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telecommunications has no effect on the direction of Nasdaq-100(r) i.e., Nasdaq-100(r) and Telecommunications go up and down completely randomly.

Pair Corralation between Nasdaq-100(r) and Telecommunications

Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to under-perform the Telecommunications. In addition to that, Nasdaq-100(r) is 2.71 times more volatile than Telecommunications Fund Class. It trades about -0.04 of its total potential returns per unit of risk. Telecommunications Fund Class is currently generating about -0.02 per unit of volatility. If you would invest  4,050  in Telecommunications Fund Class on November 28, 2024 and sell it today you would lose (50.00) from holding Telecommunications Fund Class or give up 1.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.31%
Values	Daily Returns

Nasdaq 100 2x Strategy  vs.  Telecommunications Fund Class

Nasdaq 100 2x

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nasdaq 100 2x Strategy has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Nasdaq-100(r) is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Telecommunications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Telecommunications Fund Class has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Telecommunications is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nasdaq-100(r) and Telecommunications

The main advantage of trading using opposite Nasdaq-100(r) and Telecommunications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq-100(r) position performs unexpectedly, Telecommunications can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Telecommunications will offset losses from the drop in Telecommunications' long position.

The idea behind Nasdaq 100 2x Strategy and Telecommunications Fund Class pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.