Correlation Between Mid Cap and Inverse Nasdaq

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

By analyzing existing cross correlation between Mid Cap 15x Strategy and Inverse Nasdaq 100 Strategy, you can compare the effects of market volatilities on Mid Cap and Inverse Nasdaq 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 Mid Cap with a short position of Inverse Nasdaq. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Inverse Nasdaq.

Diversification Opportunities for Mid Cap and Inverse Nasdaq

-0.41

Correlation Coefficient

Mid Cap  Inverse Nasdaq

Very good diversification

The 3 months correlation between Mid and Inverse is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap 15x 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 Mid Cap 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 Mid Cap 15x Strategy are associated (or correlated) with Inverse Nasdaq. 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 Mid Cap i.e., Mid Cap and Inverse Nasdaq go up and down completely randomly.

Pair Corralation between Mid Cap and Inverse Nasdaq

Assuming the 90 days horizon Mid Cap 15x Strategy is expected to under-perform the Inverse Nasdaq. In addition to that, Mid Cap is 1.17 times more volatile than Inverse Nasdaq 100 Strategy. It trades about -0.22 of its total potential returns per unit of risk. Inverse Nasdaq 100 Strategy is currently generating about 0.05 per unit of volatility. If you would invest  1,061  in Inverse Nasdaq 100 Strategy on October 11, 2024 and sell it today you would earn a total of  12.00  from holding Inverse Nasdaq 100 Strategy or generate 1.13% return on investment over 90 days.

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

Mid Cap 15x Strategy  vs.  Inverse Nasdaq 100 Strategy

Mid Cap 15x

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mid Cap 15x Strategy has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Mid Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Inverse Nasdaq 100

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Mid Cap and Inverse Nasdaq

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

The idea behind Mid Cap 15x 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.

Check out your portfolio center.

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 Stocks Directory module to find actively traded stocks across global markets.