Correlation Between Tech Leaders and MegaShort

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

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

Diversification Opportunities for Tech Leaders and MegaShort

0.22

Correlation Coefficient

Tech Leaders  MegaShort

Modest diversification

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

Pair Corralation between Tech Leaders and MegaShort

Assuming the 90 days trading horizon Tech Leaders Income is expected to generate 0.55 times more return on investment than MegaShort. However, Tech Leaders Income is 1.8 times less risky than MegaShort. It trades about 0.39 of its potential returns per unit of risk. MegaShort SP 500 is currently generating about -0.28 per unit of risk. If you would invest  2,006  in Tech Leaders Income on April 22, 2025 and sell it today you would earn a total of  596.00  from holding Tech Leaders Income or generate 29.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	65.08%
Values	Daily Returns

Tech Leaders Income  vs.  MegaShort SP 500

Tech Leaders Income

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Tech Leaders Income are ranked lower than 30 (%) 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.

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.

Pair Trading with Tech Leaders and MegaShort

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

The idea behind Tech Leaders Income and MegaShort SP 500 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..