Correlation Between SoundHound and NASDAQ Biotechnology

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

By analyzing existing cross correlation between SoundHound AI and NASDAQ Biotechnology, you can compare the effects of market volatilities on SoundHound and NASDAQ Biotechnology 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 SoundHound with a short position of NASDAQ Biotechnology. Check out your portfolio center. Please also check ongoing floating volatility patterns of SoundHound and NASDAQ Biotechnology.

Diversification Opportunities for SoundHound and NASDAQ Biotechnology

-0.33

Correlation Coefficient

SoundHound  NASDAQ Biotechnology

Very good diversification

The 3 months correlation between SoundHound and NASDAQ is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding SoundHound AI and NASDAQ Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NASDAQ Biotechnology and SoundHound 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 SoundHound AI are associated (or correlated) with NASDAQ Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NASDAQ Biotechnology has no effect on the direction of SoundHound i.e., SoundHound and NASDAQ Biotechnology go up and down completely randomly.

Pair Corralation between SoundHound and NASDAQ Biotechnology

Given the investment horizon of 90 days SoundHound AI is expected to under-perform the NASDAQ Biotechnology. In addition to that, SoundHound is 6.88 times more volatile than NASDAQ Biotechnology. It trades about -0.15 of its total potential returns per unit of risk. NASDAQ Biotechnology is currently generating about 0.01 per unit of volatility. If you would invest  440,146  in NASDAQ Biotechnology on December 25, 2024 and sell it today you would earn a total of  1,714  from holding NASDAQ Biotechnology or generate 0.39% return on investment over 90 days.

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

SoundHound AI  vs.  NASDAQ Biotechnology

Pair Trading with SoundHound and NASDAQ Biotechnology

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

The idea behind SoundHound AI and NASDAQ Biotechnology 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.