Correlation Between Nasdaq and IShares MSCI

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

Diversification Opportunities for Nasdaq and IShares MSCI

0.9

Correlation Coefficient

Nasdaq  IShares MSCI

Almost no diversification

The 3 months correlation between Nasdaq and IShares is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and iShares MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI USA 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 MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI USA has no effect on the direction of Nasdaq i.e., Nasdaq and IShares MSCI go up and down completely randomly.

Pair Corralation between Nasdaq and IShares MSCI

Given the investment horizon of 90 days Nasdaq Inc is expected to generate 1.2 times more return on investment than IShares MSCI. However, Nasdaq is 1.2 times more volatile than iShares MSCI USA. It trades about -0.21 of its potential returns per unit of risk. iShares MSCI USA is currently generating about -0.33 per unit of risk. If you would invest  8,128  in Nasdaq Inc on September 24, 2024 and sell it today you would lose (358.00) from holding Nasdaq Inc or give up 4.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.24%
Values	Daily Returns

Nasdaq Inc  vs.  iShares MSCI USA

Nasdaq Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 7 (%) 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.

iShares MSCI USA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI USA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IShares MSCI is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nasdaq and IShares MSCI

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

The idea behind Nasdaq Inc and iShares MSCI USA 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..