Correlation Between MicroSectors FANG and MicroSectors Big

Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and MicroSectors Big 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 MicroSectors FANG and MicroSectors Big into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MicroSectors FANG ETN and MicroSectors Big Banks, you can compare the effects of market volatilities on MicroSectors FANG and MicroSectors Big 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 MicroSectors FANG with a short position of MicroSectors Big. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and MicroSectors Big.

Diversification Opportunities for MicroSectors FANG and MicroSectors Big

0.25

Correlation Coefficient

MicroSectors FANG  MicroSectors Big

Modest diversification

The 3 months correlation between MicroSectors and MicroSectors is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG ETN and MicroSectors Big Banks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectors Big Banks and MicroSectors FANG 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 MicroSectors FANG ETN are associated (or correlated) with MicroSectors Big. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectors Big Banks has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and MicroSectors Big go up and down completely randomly.

Pair Corralation between MicroSectors FANG and MicroSectors Big

Given the investment horizon of 90 days MicroSectors FANG is expected to generate 7.08 times less return on investment than MicroSectors Big. But when comparing it to its historical volatility, MicroSectors FANG ETN is 1.66 times less risky than MicroSectors Big. It trades about 0.1 of its potential returns per unit of risk. MicroSectors Big Banks is currently generating about 0.44 of returns per unit of risk over similar time horizon. If you would invest  2,607  in MicroSectors Big Banks on February 14, 2024 and sell it today you would earn a total of  666.00  from holding MicroSectors Big Banks or generate 25.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

MicroSectors FANG ETN  vs.  MicroSectors Big Banks

MicroSectors FANG ETN

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG ETN are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, MicroSectors FANG is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

MicroSectors Big Banks

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors Big Banks are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting forward-looking signals, MicroSectors Big unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MicroSectors FANG and MicroSectors Big

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

The idea behind MicroSectors FANG ETN and MicroSectors Big Banks 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.