Correlation Between London Stock and Nasdaq
Can any of the company-specific risk be diversified away by investing in both London Stock 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 London Stock and Nasdaq into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between London Stock Exchange and Nasdaq Inc, you can compare the effects of market volatilities on London Stock 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 London Stock with a short position of Nasdaq. Check out your portfolio center. Please also check ongoing floating volatility patterns of London Stock and Nasdaq.
Diversification Opportunities for London Stock and Nasdaq
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between London and Nasdaq is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding London Stock Exchange and Nasdaq Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq Inc and London Stock 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 London Stock Exchange 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 London Stock i.e., London Stock and Nasdaq go up and down completely randomly.
Pair Corralation between London Stock and Nasdaq
Assuming the 90 days horizon London Stock is expected to generate 1.95 times less return on investment than Nasdaq. In addition to that, London Stock is 1.52 times more volatile than Nasdaq Inc. It trades about 0.08 of its total potential returns per unit of risk. Nasdaq Inc is currently generating about 0.23 per unit of volatility. If you would invest 7,184 in Nasdaq Inc on August 30, 2024 and sell it today you would earn a total of 1,121 from holding Nasdaq Inc or generate 15.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
London Stock Exchange vs. Nasdaq Inc
Performance |
| Timeline |
| London Stock Exchange |
| Nasdaq Inc |
London Stock and Nasdaq Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with London Stock and Nasdaq
The main advantage of trading using opposite London Stock and Nasdaq positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if London Stock 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.| London Stock vs. Deutsche Brse AG | London Stock vs. Singapore Exchange Limited | London Stock vs. Hong Kong Exchanges | London Stock vs. MSCI Inc |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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