Correlation Between Nasdaq-100(r) and Morningstar Unconstrained

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

Diversification Opportunities for Nasdaq-100(r) and Morningstar Unconstrained

0.06

Correlation Coefficient

Nasdaq-100(r)  Morningstar Unconstrained

Significant diversification

The 3 months correlation between Nasdaq-100(r) and Morningstar is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and Morningstar Unconstrained Allo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morningstar Unconstrained 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 Morningstar Unconstrained. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morningstar Unconstrained has no effect on the direction of Nasdaq-100(r) i.e., Nasdaq-100(r) and Morningstar Unconstrained go up and down completely randomly.

Pair Corralation between Nasdaq-100(r) and Morningstar Unconstrained

Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to generate 1.89 times more return on investment than Morningstar Unconstrained. However, Nasdaq-100(r) is 1.89 times more volatile than Morningstar Unconstrained Allocation. It trades about -0.18 of its potential returns per unit of risk. Morningstar Unconstrained Allocation is currently generating about -0.44 per unit of risk. If you would invest  61,154  in Nasdaq 100 2x Strategy on October 5, 2024 and sell it today you would lose (6,311) from holding Nasdaq 100 2x Strategy or give up 10.32% of portfolio value over 90 days.

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

Nasdaq 100 2x Strategy  vs.  Morningstar Unconstrained Allo

Nasdaq 100 2x

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 2x Strategy are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential 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.

Morningstar Unconstrained

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Morningstar Unconstrained Allocation 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 basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Nasdaq-100(r) and Morningstar Unconstrained

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

The idea behind Nasdaq 100 2x Strategy and Morningstar Unconstrained Allocation 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.