Correlation Between Nasdaq and China Overseas

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

Diversification Opportunities for Nasdaq and China Overseas

-0.31

Correlation Coefficient

Nasdaq  China Overseas

Very good diversification

The 3 months correlation between Nasdaq and China is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and China Overseas Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Overseas Land 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 Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Overseas Land has no effect on the direction of Nasdaq i.e., Nasdaq and China Overseas go up and down completely randomly.

Pair Corralation between Nasdaq and China Overseas

Given the investment horizon of 90 days Nasdaq is expected to generate 2.73 times less return on investment than China Overseas. But when comparing it to its historical volatility, Nasdaq Inc is 2.88 times less risky than China Overseas. It trades about 0.04 of its potential returns per unit of risk. China Overseas Land is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  93.00  in China Overseas Land on October 12, 2024 and sell it today you would earn a total of  56.00  from holding China Overseas Land or generate 60.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.8%
Values	Daily Returns

Nasdaq Inc  vs.  China Overseas Land

Nasdaq Inc

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Nasdaq may actually be approaching a critical reversion point that can send shares even higher in February 2025.

China Overseas Land

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Overseas Land has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Nasdaq and China Overseas

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

The idea behind Nasdaq Inc and China Overseas Land 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.