Correlation Between Nasdaq and Paradigm

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

By analyzing existing cross correlation between Nasdaq Inc and Paradigm SP GSCI, you can compare the effects of market volatilities on Nasdaq and Paradigm 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 Paradigm. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq and Paradigm.

Diversification Opportunities for Nasdaq and Paradigm

-0.63

Correlation Coefficient

Nasdaq  Paradigm

Excellent diversification

The 3 months correlation between Nasdaq and Paradigm is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Paradigm SP GSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paradigm SP GSCI 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 Paradigm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paradigm SP GSCI has no effect on the direction of Nasdaq i.e., Nasdaq and Paradigm go up and down completely randomly.

Pair Corralation between Nasdaq and Paradigm

Given the investment horizon of 90 days Nasdaq Inc is expected to generate 1.19 times more return on investment than Paradigm. However, Nasdaq is 1.19 times more volatile than Paradigm SP GSCI. It trades about 0.05 of its potential returns per unit of risk. Paradigm SP GSCI is currently generating about -0.04 per unit of risk. If you would invest  5,915  in Nasdaq Inc on September 14, 2024 and sell it today you would earn a total of  2,121  from holding Nasdaq Inc or generate 35.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.77%
Values	Daily Returns

Nasdaq Inc  vs.  Paradigm SP GSCI

Nasdaq Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 13 (%) 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.

Paradigm SP GSCI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Paradigm SP GSCI has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Paradigm is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nasdaq and Paradigm

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

The idea behind Nasdaq Inc and Paradigm SP GSCI 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.

Check out your portfolio center.

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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .