Correlation Between Short Nasdaq-100 and Smallcap Growth

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

By analyzing existing cross correlation between Short Nasdaq 100 Profund and Smallcap Growth Fund, you can compare the effects of market volatilities on Short Nasdaq-100 and Smallcap Growth 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 Short Nasdaq-100 with a short position of Smallcap Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Nasdaq-100 and Smallcap Growth.

Diversification Opportunities for Short Nasdaq-100 and Smallcap Growth

0.2

Correlation Coefficient

Short Nasdaq-100  Smallcap Growth

Modest diversification

The 3 months correlation between Short and Smallcap is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Short Nasdaq 100 Profund and Smallcap Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Growth and Short 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 Short Nasdaq 100 Profund are associated (or correlated) with Smallcap Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Growth has no effect on the direction of Short Nasdaq-100 i.e., Short Nasdaq-100 and Smallcap Growth go up and down completely randomly.

Pair Corralation between Short Nasdaq-100 and Smallcap Growth

Assuming the 90 days horizon Short Nasdaq 100 Profund is expected to under-perform the Smallcap Growth. In addition to that, Short Nasdaq-100 is 1.01 times more volatile than Smallcap Growth Fund. It trades about -0.14 of its total potential returns per unit of risk. Smallcap Growth Fund is currently generating about -0.03 per unit of volatility. If you would invest  1,577  in Smallcap Growth Fund on October 7, 2024 and sell it today you would lose (63.00) from holding Smallcap Growth Fund or give up 3.99% of portfolio value over 90 days.

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

Short Nasdaq 100 Profund  vs.  Smallcap Growth Fund

Short Nasdaq 100

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Short Nasdaq 100 Profund 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 forward 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.

Smallcap Growth

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Short Nasdaq-100 and Smallcap Growth

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

The idea behind Short Nasdaq 100 Profund and Smallcap Growth Fund 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.