Correlation Between Nasdaq-100 and Financials Ultrasector

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Can any of the company-specific risk be diversified away by investing in both Nasdaq-100 and Financials Ultrasector 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 Nasdaq-100 and Financials Ultrasector into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nasdaq 100 2x Strategy and Financials Ultrasector Profund, you can compare the effects of market volatilities on Nasdaq-100 and Financials Ultrasector 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 Nasdaq-100 with a short position of Financials Ultrasector. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq-100 and Financials Ultrasector.

Diversification Opportunities for Nasdaq-100 and Financials Ultrasector

  Correlation Coefficient

Almost no diversification

The 3 months correlation between Nasdaq-100 and Financials is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding NASDAQ-100 2X STRATEGY and FINANCIALS ULTRASECTOR PROFUND in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financials Ultrasector and 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 Nasdaq 100 2x Strategy are associated (or correlated) with Financials Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financials Ultrasector has no effect on the direction of Nasdaq-100 i.e., Nasdaq-100 and Financials Ultrasector go up and down completely randomly.

Pair Corralation between Nasdaq-100 and Financials Ultrasector

Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to generate 2.07 times more return on investment than Financials Ultrasector. However, Nasdaq-100 is 2.07 times more volatile than Financials Ultrasector Profund. It trades about 0.24 of its potential returns per unit of risk. Financials Ultrasector Profund is currently generating about 0.25 per unit of risk. If you would invest  31,170  in Nasdaq 100 2x Strategy on December 3, 2023 and sell it today you would earn a total of  3,292  from holding Nasdaq 100 2x Strategy or generate 10.56% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
ValuesDaily Returns


Nasdaq-100 2x Strategy 

Risk-Adjusted Performance

18 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 2x Strategy are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Nasdaq-100 showed solid returns over the last few months and may actually be approaching a breakup point.
Financials Ultrasector 

Risk-Adjusted Performance

19 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Financials Ultrasector Profund are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Financials Ultrasector showed solid returns over the last few months and may actually be approaching a breakup point.

Nasdaq-100 and Financials Ultrasector Volatility Contrast

   Predicted Return Density   

Pair Trading with Nasdaq-100 and Financials Ultrasector

The main advantage of trading using opposite Nasdaq-100 and Financials Ultrasector positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq-100 position performs unexpectedly, Financials Ultrasector 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 Financials Ultrasector will offset losses from the drop in Financials Ultrasector's long position.
The idea behind Nasdaq 100 2x Strategy and Financials Ultrasector Profund 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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