Correlation Between MicroSectors FANG and FCF International

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

By analyzing existing cross correlation between MicroSectors FANG Index and FCF International Quality, you can compare the effects of market volatilities on MicroSectors FANG and FCF International 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 FCF International. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and FCF International.

Diversification Opportunities for MicroSectors FANG and FCF International

-0.45

Correlation Coefficient

MicroSectors FANG  FCF International

Very good diversification

The 3 months correlation between MicroSectors and FCF is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and FCF International Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FCF International Quality 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 Index are associated (or correlated) with FCF International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FCF International Quality has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and FCF International go up and down completely randomly.

Pair Corralation between MicroSectors FANG and FCF International

Given the investment horizon of 90 days MicroSectors FANG Index is expected to under-perform the FCF International. In addition to that, MicroSectors FANG is 6.83 times more volatile than FCF International Quality. It trades about -0.03 of its total potential returns per unit of risk. FCF International Quality is currently generating about -0.03 per unit of volatility. If you would invest  2,960  in FCF International Quality on February 4, 2024 and sell it today you would lose (16.00) from holding FCF International Quality or give up 0.54% of portfolio value over 90 days.

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

MicroSectors FANG Index  vs.  FCF International Quality

MicroSectors FANG Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Etf's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

FCF International Quality

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with MicroSectors FANG and FCF International

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

The idea behind MicroSectors FANG Index and FCF International Quality 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.