Correlation Between Nasdaq and NatWest Group

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

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

Diversification Opportunities for Nasdaq and NatWest Group

0.8

Correlation Coefficient

Nasdaq  NatWest Group

Very poor diversification

The 3 months correlation between Nasdaq and NatWest is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and NatWest Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NatWest Group plc 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 NatWest Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NatWest Group plc has no effect on the direction of Nasdaq i.e., Nasdaq and NatWest Group go up and down completely randomly.

Pair Corralation between Nasdaq and NatWest Group

Given the investment horizon of 90 days Nasdaq is expected to generate 1.57 times less return on investment than NatWest Group. But when comparing it to its historical volatility, Nasdaq Inc is 1.6 times less risky than NatWest Group. It trades about 0.07 of its potential returns per unit of risk. NatWest Group plc is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,295  in NatWest Group plc on October 15, 2024 and sell it today you would earn a total of  357.00  from holding NatWest Group plc or generate 6.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.72%
Values	Daily Returns

Nasdaq Inc  vs.  NatWest Group plc

Nasdaq Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 5 (%) 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.

NatWest Group plc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NatWest Group plc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NatWest Group may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Nasdaq and NatWest Group

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

The idea behind Nasdaq Inc and NatWest Group plc 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.