Correlation Between NASDAQ Biotechnology and GMO Internet

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

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

Diversification Opportunities for NASDAQ Biotechnology and GMO Internet

-0.08

Correlation Coefficient

NASDAQ Biotechnology  GMO Internet

Good diversification

The 3 months correlation between NASDAQ and GMO is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding NASDAQ Biotechnology and GMO Internet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMO Internet and NASDAQ Biotechnology 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 Biotechnology are associated (or correlated) with GMO Internet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMO Internet has no effect on the direction of NASDAQ Biotechnology i.e., NASDAQ Biotechnology and GMO Internet go up and down completely randomly.

Pair Corralation between NASDAQ Biotechnology and GMO Internet

Assuming the 90 days trading horizon NASDAQ Biotechnology is expected to generate 201.35 times less return on investment than GMO Internet. But when comparing it to its historical volatility, NASDAQ Biotechnology is 16.28 times less risky than GMO Internet. It trades about 0.01 of its potential returns per unit of risk. GMO Internet is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,141  in GMO Internet on October 9, 2024 and sell it today you would earn a total of  539.00  from holding GMO Internet or generate 47.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	85.25%
Values	Daily Returns

NASDAQ Biotechnology  vs.  GMO Internet

Pair Trading with NASDAQ Biotechnology and GMO Internet

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

The idea behind NASDAQ Biotechnology and GMO Internet 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.