Correlation Between Apple and NASDAQ Biotechnology

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

By analyzing existing cross correlation between Apple Inc and NASDAQ Biotechnology, you can compare the effects of market volatilities on Apple and NASDAQ Biotechnology 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 Apple with a short position of NASDAQ Biotechnology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Apple and NASDAQ Biotechnology.

Diversification Opportunities for Apple and NASDAQ Biotechnology

-0.15

Correlation Coefficient

Apple  NASDAQ Biotechnology

Good diversification

The 3 months correlation between Apple and NASDAQ is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and NASDAQ Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NASDAQ Biotechnology and Apple 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 Apple Inc are associated (or correlated) with NASDAQ Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NASDAQ Biotechnology has no effect on the direction of Apple i.e., Apple and NASDAQ Biotechnology go up and down completely randomly.

Pair Corralation between Apple and NASDAQ Biotechnology

Given the investment horizon of 90 days Apple Inc is expected to generate 1.19 times more return on investment than NASDAQ Biotechnology. However, Apple is 1.19 times more volatile than NASDAQ Biotechnology. It trades about 0.16 of its potential returns per unit of risk. NASDAQ Biotechnology is currently generating about -0.06 per unit of risk. If you would invest  22,776  in Apple Inc on December 4, 2024 and sell it today you would earn a total of  1,027  from holding Apple Inc or generate 4.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Apple Inc  vs.  NASDAQ Biotechnology

Pair Trading with Apple and NASDAQ Biotechnology

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

The idea behind Apple Inc and NASDAQ Biotechnology 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.