Correlation Between Nasdaq and Basic Materials

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

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

Diversification Opportunities for Nasdaq and Basic Materials

-0.54

Correlation Coefficient

Nasdaq  Basic Materials

Excellent diversification

The 3 months correlation between Nasdaq and Basic is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Basic Materials Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Materials Ultr 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 Basic Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Materials Ultr has no effect on the direction of Nasdaq i.e., Nasdaq and Basic Materials go up and down completely randomly.

Pair Corralation between Nasdaq and Basic Materials

Given the investment horizon of 90 days Nasdaq Inc is expected to generate 0.86 times more return on investment than Basic Materials. However, Nasdaq Inc is 1.16 times less risky than Basic Materials. It trades about 0.08 of its potential returns per unit of risk. Basic Materials Ultrasector is currently generating about -0.33 per unit of risk. If you would invest  7,502  in Nasdaq Inc on September 24, 2024 and sell it today you would earn a total of  268.00  from holding Nasdaq Inc or generate 3.57% return on investment over 90 days.

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

Nasdaq Inc  vs.  Basic Materials Ultrasector

Nasdaq Inc

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 7 (%) 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.

Basic Materials Ultr

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Basic Materials Ultrasector has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Nasdaq and Basic Materials

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

The idea behind Nasdaq Inc and Basic Materials Ultrasector 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.