Correlation Between Nasdaq and China Metal

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

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

Diversification Opportunities for Nasdaq and China Metal

-0.87

Correlation Coefficient

Nasdaq  China Metal

Pay attention - limited upside

The 3 months correlation between Nasdaq and China is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and China Metal Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Metal Products 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 China Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Metal Products has no effect on the direction of Nasdaq i.e., Nasdaq and China Metal go up and down completely randomly.

Pair Corralation between Nasdaq and China Metal

Given the investment horizon of 90 days Nasdaq Inc is expected to generate 0.62 times more return on investment than China Metal. However, Nasdaq Inc is 1.61 times less risky than China Metal. It trades about 0.2 of its potential returns per unit of risk. China Metal Products is currently generating about -0.19 per unit of risk. If you would invest  7,354  in Nasdaq Inc on September 16, 2024 and sell it today you would earn a total of  658.00  from holding Nasdaq Inc or generate 8.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	97.73%
Values	Daily Returns

Nasdaq Inc  vs.  China Metal Products

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.

China Metal Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Metal Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Nasdaq and China Metal

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

The idea behind Nasdaq Inc and China Metal Products 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.