Correlation Between Nasdaq and Vanguard Target

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

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

Diversification Opportunities for Nasdaq and Vanguard Target

0.66

Correlation Coefficient

Nasdaq  Vanguard Target

Poor diversification

The 3 months correlation between Nasdaq and Vanguard is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Vanguard Target Retirement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Target Reti 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 Vanguard Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Target Reti has no effect on the direction of Nasdaq i.e., Nasdaq and Vanguard Target go up and down completely randomly.

Pair Corralation between Nasdaq and Vanguard Target

Given the investment horizon of 90 days Nasdaq Inc is expected to generate 2.15 times more return on investment than Vanguard Target. However, Nasdaq is 2.15 times more volatile than Vanguard Target Retirement. It trades about 0.16 of its potential returns per unit of risk. Vanguard Target Retirement is currently generating about 0.21 per unit of risk. If you would invest  7,783  in Nasdaq Inc on September 15, 2024 and sell it today you would earn a total of  229.00  from holding Nasdaq Inc or generate 2.94% return on investment over 90 days.

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

Nasdaq Inc  vs.  Vanguard Target Retirement

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.

Vanguard Target Reti

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Target Retirement are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Target 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 Vanguard Target

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

The idea behind Nasdaq Inc and Vanguard Target Retirement 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.