Correlation Between Nasdaq and FirstRand

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

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

Diversification Opportunities for Nasdaq and FirstRand

-0.64

Correlation Coefficient

Nasdaq  FirstRand

Excellent diversification

The 3 months correlation between Nasdaq and FirstRand is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and FirstRand Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstRand ADR 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 FirstRand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FirstRand ADR has no effect on the direction of Nasdaq i.e., Nasdaq and FirstRand go up and down completely randomly.

Pair Corralation between Nasdaq and FirstRand

Given the investment horizon of 90 days Nasdaq is expected to generate 3.73 times less return on investment than FirstRand. But when comparing it to its historical volatility, Nasdaq Inc is 4.66 times less risky than FirstRand. It trades about 0.04 of its potential returns per unit of risk. FirstRand Ltd ADR is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,860  in FirstRand Ltd ADR on October 7, 2024 and sell it today you would earn a total of  270.00  from holding FirstRand Ltd ADR or generate 6.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	83.67%
Values	Daily Returns

Nasdaq Inc  vs.  FirstRand Ltd ADR

Nasdaq Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 12 (%) 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.

FirstRand ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FirstRand Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Nasdaq and FirstRand

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

The idea behind Nasdaq Inc and FirstRand Ltd ADR 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..