Correlation Between Nasdaq 100 and Large Cap

Can any of the company-specific risk be diversified away by investing in both Nasdaq 100 and Large Cap 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 100 and Large Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Nasdaq 100 and Large Cap

1.0

Correlation Coefficient

Nasdaq 100  Large Cap

No risk reduction

The 3 months correlation between Nasdaq and Large is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 Profund Nasdaq 100 and Large Cap Growth Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Growth and Nasdaq 100 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 100 Profund Nasdaq 100 are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap Growth has no effect on the direction of Nasdaq 100 i.e., Nasdaq 100 and Large Cap go up and down completely randomly.

Pair Corralation between Nasdaq 100 and Large Cap

Assuming the 90 days horizon Nasdaq 100 Profund Nasdaq 100 is expected to generate 1.08 times more return on investment than Large Cap. However, Nasdaq 100 is 1.08 times more volatile than Large Cap Growth Profund. It trades about 0.18 of its potential returns per unit of risk. Large Cap Growth Profund is currently generating about 0.19 per unit of risk. If you would invest  4,189  in Nasdaq 100 Profund Nasdaq 100 on September 17, 2024 and sell it today you would earn a total of  491.00  from holding Nasdaq 100 Profund Nasdaq 100 or generate 11.72% return on investment over 90 days.

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

Nasdaq 100 Profund Nasdaq 100  vs.  Large Cap Growth Profund

Nasdaq 100 Profund

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 Profund Nasdaq 100 are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Nasdaq 100 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Large Cap Growth

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Growth Profund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Large Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Nasdaq 100 and Large Cap

The main advantage of trading using opposite Nasdaq 100 and Large Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 100 position performs unexpectedly, Large Cap 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 Large Cap will offset losses from the drop in Large Cap's long position.

The idea behind Nasdaq 100 Profund Nasdaq 100 and Large Cap Growth 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.