Correlation Between Nasdaq and NiSource

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

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

Diversification Opportunities for Nasdaq and NiSource

0.96

Correlation Coefficient

Nasdaq  NiSource

Almost no diversification

The 3 months correlation between Nasdaq and NiSource is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and NiSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NiSource 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 NiSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NiSource has no effect on the direction of Nasdaq i.e., Nasdaq and NiSource go up and down completely randomly.

Pair Corralation between Nasdaq and NiSource

Given the investment horizon of 90 days Nasdaq Inc is expected to generate 1.66 times more return on investment than NiSource. However, Nasdaq is 1.66 times more volatile than NiSource. It trades about -0.13 of its potential returns per unit of risk. NiSource is currently generating about -0.24 per unit of risk. If you would invest  8,128  in Nasdaq Inc on September 25, 2024 and sell it today you would lose (236.00) from holding Nasdaq Inc or give up 2.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Nasdaq Inc  vs.  NiSource

Nasdaq Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 10 (%) 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 January 2025.

NiSource

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NiSource are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NiSource reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nasdaq and NiSource

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

The idea behind Nasdaq Inc and NiSource 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.