Correlation Between Nasdaq-100 Index and Bridge Builder

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

By analyzing existing cross correlation between Nasdaq 100 Index Fund and Bridge Builder Tax, you can compare the effects of market volatilities on Nasdaq-100 Index and Bridge Builder 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 Index with a short position of Bridge Builder. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq-100 Index and Bridge Builder.

Diversification Opportunities for Nasdaq-100 Index and Bridge Builder

0.22

Correlation Coefficient

Nasdaq-100 Index  Bridge Builder

Modest diversification

The 3 months correlation between Nasdaq-100 and Bridge is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 Index Fund and Bridge Builder Tax in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridge Builder Tax and Nasdaq-100 Index 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 Index Fund are associated (or correlated) with Bridge Builder. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridge Builder Tax has no effect on the direction of Nasdaq-100 Index i.e., Nasdaq-100 Index and Bridge Builder go up and down completely randomly.

Pair Corralation between Nasdaq-100 Index and Bridge Builder

Assuming the 90 days horizon Nasdaq 100 Index Fund is expected to under-perform the Bridge Builder. In addition to that, Nasdaq-100 Index is 1.67 times more volatile than Bridge Builder Tax. It trades about -0.08 of its total potential returns per unit of risk. Bridge Builder Tax is currently generating about 0.08 per unit of volatility. If you would invest  1,153  in Bridge Builder Tax on December 4, 2024 and sell it today you would earn a total of  38.00  from holding Bridge Builder Tax or generate 3.3% return on investment over 90 days.

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

Nasdaq 100 Index Fund  vs.  Bridge Builder Tax

Nasdaq 100 Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nasdaq 100 Index Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Bridge Builder Tax

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bridge Builder Tax are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Bridge Builder 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-100 Index and Bridge Builder

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

The idea behind Nasdaq 100 Index Fund and Bridge Builder Tax 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.