Correlation Between Nasdaq 100 and Mid Cap

Can any of the company-specific risk be diversified away by investing in both Nasdaq 100 and Mid Cap 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 and Mid Cap 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 Mid Cap 15x Strategy, you can compare the effects of market volatilities on Nasdaq 100 and Mid Cap 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 with a short position of Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq 100 and Mid Cap.

Diversification Opportunities for Nasdaq 100 and Mid Cap

0.72

Correlation Coefficient

Nasdaq 100  Mid Cap

Poor diversification

The 3 months correlation between Nasdaq and Mid is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and Mid Cap 15x Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap 15x and Nasdaq 100 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 Mid Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Cap 15x has no effect on the direction of Nasdaq 100 i.e., Nasdaq 100 and Mid Cap go up and down completely randomly.

Pair Corralation between Nasdaq 100 and Mid Cap

Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to generate 1.42 times more return on investment than Mid Cap. However, Nasdaq 100 is 1.42 times more volatile than Mid Cap 15x Strategy. It trades about 0.1 of its potential returns per unit of risk. Mid Cap 15x Strategy is currently generating about 0.04 per unit of risk. If you would invest  22,641  in Nasdaq 100 2x Strategy on October 10, 2024 and sell it today you would earn a total of  34,008  from holding Nasdaq 100 2x Strategy or generate 150.21% return on investment over 90 days.

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

Nasdaq 100 2x Strategy  vs.  Mid Cap 15x Strategy

Nasdaq 100 2x

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 2x Strategy are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Nasdaq 100 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Mid Cap 15x

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap 15x Strategy are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. 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.

Pair Trading with Nasdaq 100 and Mid Cap

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

The idea behind Nasdaq 100 2x Strategy and Mid Cap 15x 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 Stocks Directory module to find actively traded stocks across global markets.