Correlation Between Inverse Nasdaq-100 and Government Long

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

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

Diversification Opportunities for Inverse Nasdaq-100 and Government Long

0.24

Correlation Coefficient

Inverse Nasdaq-100  Government Long

Modest diversification

The 3 months correlation between Inverse and Government is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Nasdaq 100 Strategy and Government Long Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Long Bond and Inverse 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 Inverse Nasdaq 100 Strategy are associated (or correlated) with Government Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Long Bond has no effect on the direction of Inverse Nasdaq-100 i.e., Inverse Nasdaq-100 and Government Long go up and down completely randomly.

Pair Corralation between Inverse Nasdaq-100 and Government Long

Assuming the 90 days horizon Inverse Nasdaq 100 Strategy is expected to under-perform the Government Long. In addition to that, Inverse Nasdaq-100 is 1.26 times more volatile than Government Long Bond. It trades about -0.06 of its total potential returns per unit of risk. Government Long Bond is currently generating about 0.03 per unit of volatility. If you would invest  9,199  in Government Long Bond on February 18, 2025 and sell it today you would earn a total of  958.00  from holding Government Long Bond or generate 10.41% return on investment over 90 days.

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

Inverse Nasdaq 100 Strategy  vs.  Government Long Bond

Inverse Nasdaq 100

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Nasdaq 100 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, Inverse Nasdaq-100 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Government Long Bond

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Inverse Nasdaq-100 and Government Long

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

The idea behind Inverse Nasdaq 100 Strategy and Government Long Bond 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.

Check out your portfolio center.

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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.