Correlation Between Mid Cap and Inverse Nasdaq-100

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

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

Diversification Opportunities for Mid Cap and Inverse Nasdaq-100

-0.89

Correlation Coefficient

Mid Cap  Inverse Nasdaq-100

Pay attention - limited upside

The 3 months correlation between Mid and Inverse is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Growth 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 Growth are associated (or correlated) with Inverse Nasdaq-100. 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-100 go up and down completely randomly.

Pair Corralation between Mid Cap and Inverse Nasdaq-100

Assuming the 90 days horizon Mid Cap Growth is expected to under-perform the Inverse Nasdaq-100. In addition to that, Mid Cap is 1.27 times more volatile than Inverse Nasdaq 100 Strategy. It trades about -0.07 of its total potential returns per unit of risk. Inverse Nasdaq 100 Strategy is currently generating about 0.11 per unit of volatility. If you would invest  13,240  in Inverse Nasdaq 100 Strategy on December 20, 2024 and sell it today you would earn a total of  1,149  from holding Inverse Nasdaq 100 Strategy or generate 8.68% return on investment over 90 days.

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

Mid Cap Growth  vs.  Inverse Nasdaq 100 Strategy

Mid Cap Growth

Risk-Adjusted Performance

Very Weak

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

Inverse Nasdaq 100

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Nasdaq 100 Strategy are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Inverse Nasdaq-100 may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Mid Cap and Inverse Nasdaq-100

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

The idea behind Mid Cap Growth 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.

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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.