Correlation Between Nasdaq and DriveItAway

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

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

Diversification Opportunities for Nasdaq and DriveItAway

0.43

Correlation Coefficient

Nasdaq  DriveItAway

Very weak diversification

The 3 months correlation between Nasdaq and DriveItAway is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and DriveItAway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DriveItAway 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 DriveItAway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DriveItAway has no effect on the direction of Nasdaq i.e., Nasdaq and DriveItAway go up and down completely randomly.

Pair Corralation between Nasdaq and DriveItAway

Given the investment horizon of 90 days Nasdaq is expected to generate 11.25 times less return on investment than DriveItAway. But when comparing it to its historical volatility, Nasdaq Inc is 18.18 times less risky than DriveItAway. It trades about 0.12 of its potential returns per unit of risk. DriveItAway is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  11.00  in DriveItAway on December 5, 2024 and sell it today you would lose (8.00) from holding DriveItAway or give up 72.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.01%
Values	Daily Returns

Nasdaq Inc  vs.  DriveItAway

Nasdaq Inc

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 1 (%) 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.

DriveItAway

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DriveItAway are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, DriveItAway showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nasdaq and DriveItAway

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

The idea behind Nasdaq Inc and DriveItAway 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.