Correlation Between Nasdaq-100 Index and Blue Chip

Can any of the company-specific risk be diversified away by investing in both Nasdaq-100 Index and Blue Chip 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 Blue Chip 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 Blue Chip Growth, you can compare the effects of market volatilities on Nasdaq-100 Index and Blue Chip 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 Blue Chip. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq-100 Index and Blue Chip.

Diversification Opportunities for Nasdaq-100 Index and Blue Chip

0.99

Correlation Coefficient

Nasdaq-100 Index  Blue Chip

No risk reduction

The 3 months correlation between Nasdaq-100 and Blue is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 Index Fund and Blue Chip Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Chip Growth 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 Blue Chip. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Chip Growth has no effect on the direction of Nasdaq-100 Index i.e., Nasdaq-100 Index and Blue Chip go up and down completely randomly.

Pair Corralation between Nasdaq-100 Index and Blue Chip

Assuming the 90 days horizon Nasdaq 100 Index Fund is expected to under-perform the Blue Chip. In addition to that, Nasdaq-100 Index is 1.55 times more volatile than Blue Chip Growth. It trades about -0.15 of its total potential returns per unit of risk. Blue Chip Growth is currently generating about -0.16 per unit of volatility. If you would invest  2,017  in Blue Chip Growth on December 30, 2024 and sell it today you would lose (374.00) from holding Blue Chip Growth or give up 18.54% of portfolio value over 90 days.

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

Nasdaq 100 Index Fund  vs.  Blue Chip Growth

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 weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Blue Chip Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Blue Chip Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Nasdaq-100 Index and Blue Chip

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

The idea behind Nasdaq 100 Index Fund and Blue Chip Growth 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.