Correlation Between Nasdaq and IShares NASDAQ

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

By analyzing existing cross correlation between Nasdaq Inc and iShares NASDAQ 100, you can compare the effects of market volatilities on Nasdaq and IShares NASDAQ 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 IShares NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq and IShares NASDAQ.

Diversification Opportunities for Nasdaq and IShares NASDAQ

0.72

Correlation Coefficient

Nasdaq  IShares NASDAQ

Poor diversification

The 3 months correlation between Nasdaq and IShares is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and iShares NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares NASDAQ 100 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 IShares NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares NASDAQ 100 has no effect on the direction of Nasdaq i.e., Nasdaq and IShares NASDAQ go up and down completely randomly.

Pair Corralation between Nasdaq and IShares NASDAQ

Given the investment horizon of 90 days Nasdaq is expected to generate 2.24 times less return on investment than IShares NASDAQ. In addition to that, Nasdaq is 1.25 times more volatile than iShares NASDAQ 100. It trades about 0.04 of its total potential returns per unit of risk. iShares NASDAQ 100 is currently generating about 0.13 per unit of volatility. If you would invest  64,030  in iShares NASDAQ 100 on September 30, 2024 and sell it today you would earn a total of  58,530  from holding iShares NASDAQ 100 or generate 91.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Nasdaq Inc  vs.  iShares NASDAQ 100

Nasdaq Inc

Risk-Adjusted Performance

9 of 100

OK

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 January 2025.

iShares NASDAQ 100

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares NASDAQ 100 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, IShares NASDAQ may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Nasdaq and IShares NASDAQ

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

The idea behind Nasdaq Inc and iShares NASDAQ 100 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.