Correlation Between Europe 125x and Inverse Nasdaq-100

Can any of the company-specific risk be diversified away by investing in both Europe 125x and Inverse Nasdaq-100 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 Europe 125x and Inverse Nasdaq-100 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Europe 125x Strategy and Inverse Nasdaq 100 Strategy, you can compare the effects of market volatilities on Europe 125x and Inverse Nasdaq-100 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 Europe 125x with a short position of Inverse Nasdaq-100. Check out your portfolio center. Please also check ongoing floating volatility patterns of Europe 125x and Inverse Nasdaq-100.

Diversification Opportunities for Europe 125x and Inverse Nasdaq-100

0.56

Correlation Coefficient

Europe 125x  Inverse Nasdaq-100

Very weak diversification

The 3 months correlation between Europe and Inverse is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Europe 125x Strategy and Inverse Nasdaq 100 Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Nasdaq 100 and Europe 125x 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 Europe 125x Strategy are associated (or correlated) with Inverse Nasdaq-100. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Nasdaq 100 has no effect on the direction of Europe 125x i.e., Europe 125x and Inverse Nasdaq-100 go up and down completely randomly.

Pair Corralation between Europe 125x and Inverse Nasdaq-100

Assuming the 90 days horizon Europe 125x Strategy is expected to generate 0.8 times more return on investment than Inverse Nasdaq-100. However, Europe 125x Strategy is 1.25 times less risky than Inverse Nasdaq-100. It trades about 0.2 of its potential returns per unit of risk. Inverse Nasdaq 100 Strategy is currently generating about 0.12 per unit of risk. If you would invest  7,678  in Europe 125x Strategy on December 30, 2024 and sell it today you would earn a total of  1,116  from holding Europe 125x Strategy or generate 14.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Europe 125x Strategy  vs.  Inverse Nasdaq 100 Strategy

Europe 125x Strategy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Europe 125x Strategy are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Europe 125x showed solid returns over the last few months and may actually be approaching a breakup point.

Inverse Nasdaq 100

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Nasdaq 100 Strategy are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Inverse Nasdaq-100 may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Europe 125x and Inverse Nasdaq-100

The main advantage of trading using opposite Europe 125x and Inverse Nasdaq-100 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Europe 125x position performs unexpectedly, Inverse Nasdaq-100 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 Inverse Nasdaq-100 will offset losses from the drop in Inverse Nasdaq-100's long position.

The idea behind Europe 125x Strategy and Inverse Nasdaq 100 Strategy 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 Transaction History module to view history of all your transactions and understand their impact on performance.