Correlation Between Basic Materials and Nasdaq 100

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

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

Diversification Opportunities for Basic Materials and Nasdaq 100

0.82

Correlation Coefficient

Basic Materials  Nasdaq 100

Very poor diversification

The 3 months correlation between Basic and Nasdaq is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Fund and Nasdaq 100 Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 Fund and Basic Materials 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 Basic Materials Fund are associated (or correlated) with Nasdaq 100. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 Fund has no effect on the direction of Basic Materials i.e., Basic Materials and Nasdaq 100 go up and down completely randomly.

Pair Corralation between Basic Materials and Nasdaq 100

Assuming the 90 days horizon Basic Materials Fund is expected to generate 1.45 times more return on investment than Nasdaq 100. However, Basic Materials is 1.45 times more volatile than Nasdaq 100 Fund Class. It trades about 0.14 of its potential returns per unit of risk. Nasdaq 100 Fund Class is currently generating about 0.18 per unit of risk. If you would invest  5,997  in Basic Materials Fund on July 2, 2025 and sell it today you would earn a total of  521.00  from holding Basic Materials Fund or generate 8.69% return on investment over 90 days.

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

Basic Materials Fund  vs.  Nasdaq 100 Fund Class

Basic Materials

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Basic Materials Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Basic Materials may actually be approaching a critical reversion point that can send shares even higher in October 2025.

Nasdaq 100 Fund

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 Fund Class are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Nasdaq 100 may actually be approaching a critical reversion point that can send shares even higher in October 2025.

Pair Trading with Basic Materials and Nasdaq 100

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

The idea behind Basic Materials Fund and Nasdaq 100 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.