Correlation Between NYSE Composite and Short Nasdaq

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

By analyzing existing cross correlation between NYSE Composite and Short Nasdaq 100 Profund, you can compare the effects of market volatilities on NYSE Composite and Short Nasdaq 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 NYSE Composite with a short position of Short Nasdaq. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and Short Nasdaq.

Diversification Opportunities for NYSE Composite and Short Nasdaq

-0.36

Correlation Coefficient

NYSE Composite  Short Nasdaq

Very good diversification

The 3 months correlation between NYSE and Short is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Short Nasdaq 100 Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Nasdaq 100 and NYSE Composite 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 NYSE Composite are associated (or correlated) with Short Nasdaq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Nasdaq 100 has no effect on the direction of NYSE Composite i.e., NYSE Composite and Short Nasdaq go up and down completely randomly.

Pair Corralation between NYSE Composite and Short Nasdaq

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the Short Nasdaq. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 1.67 times less risky than Short Nasdaq. The index trades about -0.29 of its potential returns per unit of risk. The Short Nasdaq 100 Profund is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  4,613  in Short Nasdaq 100 Profund on September 22, 2024 and sell it today you would lose (67.00) from holding Short Nasdaq 100 Profund or give up 1.45% of portfolio value over 90 days.

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

NYSE Composite  vs.  Short Nasdaq 100 Profund

Pair Trading with NYSE Composite and Short Nasdaq

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

The idea behind NYSE Composite and Short Nasdaq 100 Profund 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.