Correlation Between Nasdaq and BCAP Mid

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

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

Diversification Opportunities for Nasdaq and BCAP Mid

-0.86

Correlation Coefficient

Nasdaq  BCAP Mid

Pay attention - limited upside

The 3 months correlation between Nasdaq and BCAP is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and BCAP Mid Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BCAP Mid Small 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 BCAP Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BCAP Mid Small has no effect on the direction of Nasdaq i.e., Nasdaq and BCAP Mid go up and down completely randomly.

Pair Corralation between Nasdaq and BCAP Mid

Given the investment horizon of 90 days Nasdaq Inc is expected to generate 1.37 times more return on investment than BCAP Mid. However, Nasdaq is 1.37 times more volatile than BCAP Mid Small. It trades about -0.18 of its potential returns per unit of risk. BCAP Mid Small is currently generating about -0.39 per unit of risk. If you would invest  8,083  in Nasdaq Inc on September 23, 2024 and sell it today you would lose (313.00) from holding Nasdaq Inc or give up 3.87% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Nasdaq Inc  vs.  BCAP Mid Small

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.

BCAP Mid Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BCAP Mid Small has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Etf's fundamental drivers remain somewhat 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 ETF investors.

Pair Trading with Nasdaq and BCAP Mid

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

The idea behind Nasdaq Inc and BCAP Mid Small 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.