Correlation Between MicroSectors FANG and Simplify Exchange

Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and Simplify Exchange 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 Simplify Exchange 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 Simplify Exchange Traded, you can compare the effects of market volatilities on MicroSectors FANG and Simplify Exchange 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 Simplify Exchange. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and Simplify Exchange.

Diversification Opportunities for MicroSectors FANG and Simplify Exchange

-0.66

Correlation Coefficient

MicroSectors FANG  Simplify Exchange

Excellent diversification

The 3 months correlation between MicroSectors and Simplify is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and Simplify Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simplify Exchange Traded 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 Simplify Exchange. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simplify Exchange Traded has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and Simplify Exchange go up and down completely randomly.

Pair Corralation between MicroSectors FANG and Simplify Exchange

Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 11.78 times more return on investment than Simplify Exchange. However, MicroSectors FANG is 11.78 times more volatile than Simplify Exchange Traded. It trades about 0.48 of its potential returns per unit of risk. Simplify Exchange Traded is currently generating about 0.1 per unit of risk. If you would invest  27,760  in MicroSectors FANG Index on April 20, 2025 and sell it today you would earn a total of  15,630  from holding MicroSectors FANG Index or generate 56.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	37.1%
Values	Daily Returns

MicroSectors FANG Index  vs.  Simplify Exchange Traded

MicroSectors FANG Index

Risk-Adjusted Performance

Very Strong

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 comparatively conflicting technical and fundamental indicators, MicroSectors FANG unveiled solid returns over the last few months and may actually be approaching a breakup point.

Simplify Exchange Traded

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Simplify Exchange Traded are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Simplify Exchange is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with MicroSectors FANG and Simplify Exchange

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

The idea behind MicroSectors FANG Index and Simplify Exchange Traded 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.