Correlation Between MicroSectors FANG and 6 Meridian

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Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and 6 Meridian 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 6 Meridian 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 6 Meridian Small, you can compare the effects of market volatilities on MicroSectors FANG and 6 Meridian 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 6 Meridian. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and 6 Meridian.

Diversification Opportunities for MicroSectors FANG and 6 Meridian

-0.44
  Correlation Coefficient

Very good diversification

The 3 months correlation between MicroSectors and SIXS is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and 6 Meridian Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 6 Meridian Small 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 6 Meridian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 6 Meridian Small has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and 6 Meridian go up and down completely randomly.

Pair Corralation between MicroSectors FANG and 6 Meridian

Given the investment horizon of 90 days MicroSectors FANG Index is expected to under-perform the 6 Meridian. But the etf apears to be less risky and, when comparing its historical volatility, MicroSectors FANG Index is 2.14 times less risky than 6 Meridian. The etf trades about -0.09 of its potential returns per unit of risk. The 6 Meridian Small is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4,529  in 6 Meridian Small on May 3, 2025 and sell it today you would earn a total of  137.00  from holding 6 Meridian Small or generate 3.02% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy20.97%
ValuesDaily Returns

MicroSectors FANG Index  vs.  6 Meridian Small

 Performance 
       Timeline  
MicroSectors FANG Index 

Risk-Adjusted Performance

Very Weak

 
Weak
 
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 stable technical and fundamental indicators, MicroSectors FANG is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.
6 Meridian Small 

Risk-Adjusted Performance

Modest

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in 6 Meridian Small are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, 6 Meridian is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

MicroSectors FANG and 6 Meridian Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with MicroSectors FANG and 6 Meridian

The main advantage of trading using opposite MicroSectors FANG and 6 Meridian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG position performs unexpectedly, 6 Meridian 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 6 Meridian will offset losses from the drop in 6 Meridian's long position.
The idea behind MicroSectors FANG Index and 6 Meridian Small 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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