Correlation Between Nasdaq and CHINA STATE

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

Diversification Opportunities for Nasdaq and CHINA STATE

-0.32

Correlation Coefficient

Nasdaq  CHINA STATE

Very good diversification

The 3 months correlation between Nasdaq and CHINA is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and CHINA STATE STRU in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA STATE STRU 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 STATE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA STATE STRU has no effect on the direction of Nasdaq i.e., Nasdaq and CHINA STATE go up and down completely randomly.

Pair Corralation between Nasdaq and CHINA STATE

Given the investment horizon of 90 days Nasdaq is expected to generate 1.6 times less return on investment than CHINA STATE. But when comparing it to its historical volatility, Nasdaq Inc is 2.86 times less risky than CHINA STATE. It trades about 0.18 of its potential returns per unit of risk. CHINA STATE STRU is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  92.00  in CHINA STATE STRU on September 23, 2024 and sell it today you would earn a total of  43.00  from holding CHINA STATE STRU or generate 46.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.45%
Values	Daily Returns

Nasdaq Inc  vs.  CHINA STATE STRU

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 STATE STRU

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA STATE STRU are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, CHINA STATE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Nasdaq and CHINA STATE

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

The idea behind Nasdaq Inc and CHINA STATE STRU 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.