Correlation Between Nasdaq-100(r) and Wilshire Large

Can any of the company-specific risk be diversified away by investing in both Nasdaq-100(r) and Wilshire Large 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 Wilshire Large 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 Wilshire Large, you can compare the effects of market volatilities on Nasdaq-100(r) and Wilshire Large 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 Wilshire Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq-100(r) and Wilshire Large.

Diversification Opportunities for Nasdaq-100(r) and Wilshire Large

0.98

Correlation Coefficient

Nasdaq-100(r)  Wilshire Large

Almost no diversification

The 3 months correlation between Nasdaq-100(r) and Wilshire is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and Wilshire Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wilshire Large 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 Wilshire Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wilshire Large has no effect on the direction of Nasdaq-100(r) i.e., Nasdaq-100(r) and Wilshire Large go up and down completely randomly.

Pair Corralation between Nasdaq-100(r) and Wilshire Large

Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to under-perform the Wilshire Large. In addition to that, Nasdaq-100(r) is 1.75 times more volatile than Wilshire Large. It trades about -0.12 of its total potential returns per unit of risk. Wilshire Large is currently generating about -0.12 per unit of volatility. If you would invest  4,415  in Wilshire Large on December 24, 2024 and sell it today you would lose (481.00) from holding Wilshire Large or give up 10.89% of portfolio value over 90 days.

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

Nasdaq 100 2x Strategy  vs.  Wilshire Large

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 weak performance in the last few months, the Fund's essential indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Wilshire Large

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wilshire Large has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Nasdaq-100(r) and Wilshire Large

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

The idea behind Nasdaq 100 2x Strategy and Wilshire Large 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.