Correlation Between Nasdaq and Cathay Nikkei

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

By analyzing existing cross correlation between Nasdaq Inc and Cathay Nikkei 225, you can compare the effects of market volatilities on Nasdaq and Cathay Nikkei 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 with a short position of Cathay Nikkei. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq and Cathay Nikkei.

Diversification Opportunities for Nasdaq and Cathay Nikkei

-0.08

Correlation Coefficient

Nasdaq  Cathay Nikkei

Good diversification

The 3 months correlation between Nasdaq and Cathay is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Cathay Nikkei 225 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Nikkei 225 and Nasdaq 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 Inc are associated (or correlated) with Cathay Nikkei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Nikkei 225 has no effect on the direction of Nasdaq i.e., Nasdaq and Cathay Nikkei go up and down completely randomly.

Pair Corralation between Nasdaq and Cathay Nikkei

Given the investment horizon of 90 days Nasdaq Inc is expected to generate 0.86 times more return on investment than Cathay Nikkei. However, Nasdaq Inc is 1.16 times less risky than Cathay Nikkei. It trades about 0.16 of its potential returns per unit of risk. Cathay Nikkei 225 is currently generating about 0.09 per unit of risk. If you would invest  7,783  in Nasdaq Inc on September 15, 2024 and sell it today you would earn a total of  229.00  from holding Nasdaq Inc or generate 2.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Nasdaq Inc  vs.  Cathay Nikkei 225

Nasdaq Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Nasdaq may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Cathay Nikkei 225

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Nikkei 225 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Cathay Nikkei may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Nasdaq and Cathay Nikkei

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

The idea behind Nasdaq Inc and Cathay Nikkei 225 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.