Correlation Between Nasdaq and Made SA
Can any of the company-specific risk be diversified away by investing in both Nasdaq and Made SA 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 Made SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nasdaq Inc and Made SA, you can compare the effects of market volatilities on Nasdaq and Made SA 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 Made SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq and Made SA.
Diversification Opportunities for Nasdaq and Made SA
Significant diversification
The 3 months correlation between Nasdaq and Made is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Made SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Made SA 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 Made SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Made SA has no effect on the direction of Nasdaq i.e., Nasdaq and Made SA go up and down completely randomly.
Pair Corralation between Nasdaq and Made SA
Given the investment horizon of 90 days Nasdaq is expected to generate 11.64 times less return on investment than Made SA. But when comparing it to its historical volatility, Nasdaq Inc is 6.7 times less risky than Made SA. It trades about 0.06 of its potential returns per unit of risk. Made SA is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1,100 in Made SA on October 22, 2024 and sell it today you would earn a total of 100.00 from holding Made SA or generate 9.09% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 94.74% |
Values | Daily Returns |
Nasdaq Inc vs. Made SA
Performance |
Timeline |
Nasdaq Inc |
Made SA |
Nasdaq and Made SA Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Nasdaq and Made SA
The main advantage of trading using opposite Nasdaq and Made SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq position performs unexpectedly, Made SA 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 Made SA will offset losses from the drop in Made SA's long position.The idea behind Nasdaq Inc and Made SA 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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