Correlation Between California Bond and Nasdaq 100

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

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

Diversification Opportunities for California Bond and Nasdaq 100

0.2

Correlation Coefficient

California Bond  Nasdaq 100

Modest diversification

The 3 months correlation between California and Nasdaq is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding California Bond Fund and Nasdaq 100 Index Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 Index and California Bond 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 California Bond Fund are associated (or correlated) with Nasdaq 100. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 Index has no effect on the direction of California Bond i.e., California Bond and Nasdaq 100 go up and down completely randomly.

Pair Corralation between California Bond and Nasdaq 100

Assuming the 90 days horizon California Bond Fund is expected to under-perform the Nasdaq 100. But the mutual fund apears to be less risky and, when comparing its historical volatility, California Bond Fund is 3.16 times less risky than Nasdaq 100. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Nasdaq 100 Index Fund is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  4,985  in Nasdaq 100 Index Fund on September 19, 2024 and sell it today you would earn a total of  457.00  from holding Nasdaq 100 Index Fund or generate 9.17% return on investment over 90 days.

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

California Bond Fund  vs.  Nasdaq 100 Index Fund

California Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days California Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, California Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Nasdaq 100 Index

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 Index Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Nasdaq 100 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with California Bond and Nasdaq 100

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

The idea behind California Bond Fund and Nasdaq 100 Index Fund 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.