Correlation Between Nasdaq and US FOODS

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

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

Diversification Opportunities for Nasdaq and US FOODS

0.94

Correlation Coefficient

Nasdaq  US FOODS

Almost no diversification

The 3 months correlation between Nasdaq and UFH is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and US FOODS HOLDING in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US FOODS HOLDING 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 US FOODS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US FOODS HOLDING has no effect on the direction of Nasdaq i.e., Nasdaq and US FOODS go up and down completely randomly.

Pair Corralation between Nasdaq and US FOODS

Given the investment horizon of 90 days Nasdaq Inc is expected to under-perform the US FOODS. But the stock apears to be less risky and, when comparing its historical volatility, Nasdaq Inc is 1.13 times less risky than US FOODS. The stock trades about -0.18 of its potential returns per unit of risk. The US FOODS HOLDING is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  6,650  in US FOODS HOLDING on September 23, 2024 and sell it today you would lose (150.00) from holding US FOODS HOLDING or give up 2.26% 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.  US FOODS HOLDING

Nasdaq Inc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 6 (%) 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.

US FOODS HOLDING

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in US FOODS HOLDING are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical indicators, US FOODS exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nasdaq and US FOODS

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

The idea behind Nasdaq Inc and US FOODS HOLDING 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.