Correlation Between Nasdaq-100 Fund and Banking Fund

Can any of the company-specific risk be diversified away by investing in both Nasdaq-100 Fund and Banking Fund 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 Fund and Banking Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nasdaq 100 Fund Class and Banking Fund Class, you can compare the effects of market volatilities on Nasdaq-100 Fund and Banking Fund 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 Fund with a short position of Banking Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq-100 Fund and Banking Fund.

Diversification Opportunities for Nasdaq-100 Fund and Banking Fund

0.93

Correlation Coefficient

Nasdaq-100 Fund  Banking Fund

Almost no diversification

The 3 months correlation between Nasdaq-100 and Banking is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 Fund Class and Banking Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banking Fund Class and Nasdaq-100 Fund 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 Fund Class are associated (or correlated) with Banking Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banking Fund Class has no effect on the direction of Nasdaq-100 Fund i.e., Nasdaq-100 Fund and Banking Fund go up and down completely randomly.

Pair Corralation between Nasdaq-100 Fund and Banking Fund

Assuming the 90 days horizon Nasdaq 100 Fund Class is expected to generate 0.76 times more return on investment than Banking Fund. However, Nasdaq 100 Fund Class is 1.31 times less risky than Banking Fund. It trades about 0.25 of its potential returns per unit of risk. Banking Fund Class is currently generating about 0.14 per unit of risk. If you would invest  6,797  in Nasdaq 100 Fund Class on May 6, 2025 and sell it today you would earn a total of  1,008  from holding Nasdaq 100 Fund Class or generate 14.83% return on investment over 90 days.

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

Nasdaq 100 Fund Class  vs.  Banking Fund Class

Nasdaq 100 Fund

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 Fund Class are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Nasdaq-100 Fund showed solid returns over the last few months and may actually be approaching a breakup point.

Banking Fund Class

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Banking Fund Class are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Banking Fund may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Nasdaq-100 Fund and Banking Fund

The main advantage of trading using opposite Nasdaq-100 Fund and Banking Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq-100 Fund position performs unexpectedly, Banking Fund 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 Banking Fund will offset losses from the drop in Banking Fund's long position.

The idea behind Nasdaq 100 Fund Class and Banking Fund Class 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.