Correlation Between Mini Dow and Nasdaq 100

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

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

Diversification Opportunities for Mini Dow and Nasdaq 100

0.85

Correlation Coefficient

Mini Dow  Nasdaq 100

Very poor diversification

The 3 months correlation between Mini and Nasdaq is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Mini Dow Jones and Nasdaq 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 and Mini Dow 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 Mini Dow Jones 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 has no effect on the direction of Mini Dow i.e., Mini Dow and Nasdaq 100 go up and down completely randomly.

Pair Corralation between Mini Dow and Nasdaq 100

Assuming the 90 days horizon Mini Dow Jones is expected to generate 0.57 times more return on investment than Nasdaq 100. However, Mini Dow Jones is 1.76 times less risky than Nasdaq 100. It trades about -0.04 of its potential returns per unit of risk. Nasdaq 100 is currently generating about -0.1 per unit of risk. If you would invest  4,292,700  in Mini Dow Jones on December 29, 2024 and sell it today you would lose (107,600) from holding Mini Dow Jones or give up 2.51% of portfolio value over 90 days.

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

Mini Dow Jones  vs.  Nasdaq 100

Mini Dow Jones

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mini Dow Jones has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Mini Dow is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Nasdaq 100

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nasdaq 100 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Commodity's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for Nasdaq 100 shareholders.

Pair Trading with Mini Dow and Nasdaq 100

The main advantage of trading using opposite Mini Dow and Nasdaq 100 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mini Dow 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 Mini Dow Jones and Nasdaq 100 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.