Correlation Between Nasdaq-100 Index and Growth Opportunities

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

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

Diversification Opportunities for Nasdaq-100 Index and Growth Opportunities

0.52

Correlation Coefficient

Nasdaq-100 Index  Growth Opportunities

Very weak diversification

The 3 months correlation between Nasdaq-100 and Growth is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 Index Fund and Growth Opportunities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Opportunities and Nasdaq-100 Index 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 Index Fund are associated (or correlated) with Growth Opportunities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Opportunities has no effect on the direction of Nasdaq-100 Index i.e., Nasdaq-100 Index and Growth Opportunities go up and down completely randomly.

Pair Corralation between Nasdaq-100 Index and Growth Opportunities

Assuming the 90 days horizon Nasdaq 100 Index Fund is expected to generate 0.95 times more return on investment than Growth Opportunities. However, Nasdaq 100 Index Fund is 1.05 times less risky than Growth Opportunities. It trades about 0.0 of its potential returns per unit of risk. Growth Opportunities Fund is currently generating about -0.07 per unit of risk. If you would invest  5,236  in Nasdaq 100 Index Fund on November 29, 2024 and sell it today you would lose (34.00) from holding Nasdaq 100 Index Fund or give up 0.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Nasdaq 100 Index Fund  vs.  Growth Opportunities Fund

Nasdaq 100 Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nasdaq 100 Index Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Nasdaq-100 Index is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Growth Opportunities

Risk-Adjusted Performance

Very Weak

Over the last 90 days Growth Opportunities Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Growth Opportunities 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 Index and Growth Opportunities

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

The idea behind Nasdaq 100 Index Fund and Growth Opportunities 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.