Correlation Between Nasdaq and State Street

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

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

Diversification Opportunities for Nasdaq and State Street

0.22

Correlation Coefficient

Nasdaq  State Street

Modest diversification

The 3 months correlation between Nasdaq and State is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and State Street Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Target 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 State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street Target has no effect on the direction of Nasdaq i.e., Nasdaq and State Street go up and down completely randomly.

Pair Corralation between Nasdaq and State Street

Given the investment horizon of 90 days Nasdaq Inc is expected to generate 3.73 times more return on investment than State Street. However, Nasdaq is 3.73 times more volatile than State Street Target. It trades about 0.05 of its potential returns per unit of risk. State Street Target is currently generating about 0.11 per unit of risk. If you would invest  5,915  in Nasdaq Inc on September 15, 2024 and sell it today you would earn a total of  2,097  from holding Nasdaq Inc or generate 35.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Nasdaq Inc  vs.  State Street Target

Nasdaq Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 11 (%) 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.

State Street Target

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in State Street Target are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, State Street is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nasdaq and State Street

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

The idea behind Nasdaq Inc and State Street Target 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.