Correlation Between Basic Materials and Nasdaq
Can any of the company-specific risk be diversified away by investing in both Basic Materials and Nasdaq 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 Basic Materials and Nasdaq into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials and Nasdaq Inc, you can compare the effects of market volatilities on Basic Materials and Nasdaq 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 Basic Materials with a short position of Nasdaq. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Nasdaq.
Diversification Opportunities for Basic Materials and Nasdaq
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Basic and Nasdaq is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and Nasdaq Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq Inc and Basic Materials 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 Basic Materials are associated (or correlated) with Nasdaq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq Inc has no effect on the direction of Basic Materials i.e., Basic Materials and Nasdaq go up and down completely randomly.
Pair Corralation between Basic Materials and Nasdaq
Assuming the 90 days trading horizon Basic Materials is expected to generate 1353.4 times less return on investment than Nasdaq. But when comparing it to its historical volatility, Basic Materials is 1.35 times less risky than Nasdaq. It trades about 0.0 of its potential returns per unit of risk. Nasdaq Inc is currently generating about 0.52 of returns per unit of risk over similar time horizon. If you would invest 21,802 in Nasdaq Inc on August 31, 2024 and sell it today you would earn a total of 3,275 from holding Nasdaq Inc or generate 15.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Basic Materials vs. Nasdaq Inc
Performance |
| Timeline |
Basic Materials and Nasdaq Volatility Contrast
Predicted Return Density |
| Returns |
Basic Materials
Pair trading matchups for Basic Materials
Nasdaq Inc
Pair trading matchups for Nasdaq
Pair Trading with Basic Materials and Nasdaq
The main advantage of trading using opposite Basic Materials and Nasdaq positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials position performs unexpectedly, Nasdaq 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 will offset losses from the drop in Nasdaq's long position.| Basic Materials vs. Micron Technology | Basic Materials vs. Ross Stores | Basic Materials vs. Monster Beverage | Basic Materials vs. TAL Education Group |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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