Correlation Between Nasdaq and China Railway

Can any of the company-specific risk be diversified away by investing in both Nasdaq and China Railway 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 Railway 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 Railway Construction, you can compare the effects of market volatilities on Nasdaq and China Railway 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 Railway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq and China Railway.

Diversification Opportunities for Nasdaq and China Railway

-0.02

Correlation Coefficient

Nasdaq  China Railway

Good diversification

The 3 months correlation between Nasdaq and China is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and China Railway Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Constr 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 Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Railway Constr has no effect on the direction of Nasdaq i.e., Nasdaq and China Railway go up and down completely randomly.

Pair Corralation between Nasdaq and China Railway

Given the investment horizon of 90 days Nasdaq Inc is expected to generate 0.46 times more return on investment than China Railway. However, Nasdaq Inc is 2.19 times less risky than China Railway. It trades about 0.12 of its potential returns per unit of risk. China Railway Construction is currently generating about 0.04 per unit of risk. If you would invest  5,459  in Nasdaq Inc on September 23, 2024 and sell it today you would earn a total of  2,311  from holding Nasdaq Inc or generate 42.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.9%
Values	Daily Returns

Nasdaq Inc  vs.  China Railway Construction

Nasdaq Inc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. 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.

China Railway Constr

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Construction are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Railway reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nasdaq and China Railway

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

The idea behind Nasdaq Inc and China Railway Construction 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.