Correlation Between MegaShort and Tech Leaders

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

By analyzing existing cross correlation between MegaShort SP 500 and Tech Leaders Income, you can compare the effects of market volatilities on MegaShort and Tech Leaders 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 MegaShort with a short position of Tech Leaders. Check out your portfolio center. Please also check ongoing floating volatility patterns of MegaShort and Tech Leaders.

Diversification Opportunities for MegaShort and Tech Leaders

0.22

Correlation Coefficient

MegaShort  Tech Leaders

Modest diversification

The 3 months correlation between MegaShort and Tech is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding MegaShort SP 500 and Tech Leaders Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tech Leaders Income and MegaShort 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 MegaShort SP 500 are associated (or correlated) with Tech Leaders. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tech Leaders Income has no effect on the direction of MegaShort i.e., MegaShort and Tech Leaders go up and down completely randomly.

Pair Corralation between MegaShort and Tech Leaders

Assuming the 90 days trading horizon MegaShort SP 500 is expected to under-perform the Tech Leaders. In addition to that, MegaShort is 1.88 times more volatile than Tech Leaders Income. It trades about -0.29 of its total potential returns per unit of risk. Tech Leaders Income is currently generating about 0.37 per unit of volatility. If you would invest  2,067  in Tech Leaders Income on April 23, 2025 and sell it today you would earn a total of  546.00  from holding Tech Leaders Income or generate 26.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	66.13%
Values	Daily Returns

MegaShort SP 500  vs.  Tech Leaders Income

MegaShort SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days MegaShort SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Etf's basic indicators remain very healthy which may send shares a bit higher in August 2025. The recent disarray may also be a sign of long period up-swing for the ETF investors.

Tech Leaders Income

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Tech Leaders Income are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Tech Leaders displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MegaShort and Tech Leaders

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

The idea behind MegaShort SP 500 and Tech Leaders Income 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.