Correlation Between VanEck Biotech and Invesco NASDAQ

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

By analyzing existing cross correlation between VanEck Biotech ETF and Invesco NASDAQ Internet, you can compare the effects of market volatilities on VanEck Biotech and Invesco NASDAQ 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 VanEck Biotech with a short position of Invesco NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of VanEck Biotech and Invesco NASDAQ.

Diversification Opportunities for VanEck Biotech and Invesco NASDAQ

0.61

Correlation Coefficient

VanEck Biotech  Invesco NASDAQ

Poor diversification

The 3 months correlation between VanEck and Invesco is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Biotech ETF and Invesco NASDAQ Internet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco NASDAQ Internet and VanEck Biotech 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 VanEck Biotech ETF are associated (or correlated) with Invesco NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco NASDAQ Internet has no effect on the direction of VanEck Biotech i.e., VanEck Biotech and Invesco NASDAQ go up and down completely randomly.

Pair Corralation between VanEck Biotech and Invesco NASDAQ

Considering the 90-day investment horizon VanEck Biotech is expected to generate 2.39 times less return on investment than Invesco NASDAQ. But when comparing it to its historical volatility, VanEck Biotech ETF is 1.36 times less risky than Invesco NASDAQ. It trades about 0.03 of its potential returns per unit of risk. Invesco NASDAQ Internet is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,686  in Invesco NASDAQ Internet on February 26, 2024 and sell it today you would earn a total of  1,289  from holding Invesco NASDAQ Internet or generate 47.99% return on investment over 90 days.

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

VanEck Biotech ETF  vs.  Invesco NASDAQ Internet

VanEck Biotech ETF

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Biotech ETF are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental drivers, VanEck Biotech is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Invesco NASDAQ Internet

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco NASDAQ Internet are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Invesco NASDAQ is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with VanEck Biotech and Invesco NASDAQ

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

The idea behind VanEck Biotech ETF and Invesco NASDAQ Internet 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.