Correlation Between Nasdaq and Air Asia

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

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

Diversification Opportunities for Nasdaq and Air Asia

0.28

Correlation Coefficient

Nasdaq  Air Asia

Modest diversification

The 3 months correlation between Nasdaq and Air is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Air Asia Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Asia 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 Air Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Asia has no effect on the direction of Nasdaq i.e., Nasdaq and Air Asia go up and down completely randomly.

Pair Corralation between Nasdaq and Air Asia

Given the investment horizon of 90 days Nasdaq Inc is expected to generate 0.66 times more return on investment than Air Asia. However, Nasdaq Inc is 1.52 times less risky than Air Asia. It trades about 0.01 of its potential returns per unit of risk. Air Asia Co is currently generating about -0.04 per unit of risk. If you would invest  8,192  in Nasdaq Inc on December 4, 2024 and sell it today you would earn a total of  5.00  from holding Nasdaq Inc or generate 0.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Nasdaq Inc  vs.  Air Asia Co

Nasdaq Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nasdaq Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Nasdaq is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Air Asia

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Air Asia Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Air Asia showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nasdaq and Air Asia

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

The idea behind Nasdaq Inc and Air Asia Co 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.