Correlation Between Nasdaq and AAP
Can any of the company-specific risk be diversified away by investing in both Nasdaq and AAP 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 and AAP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nasdaq Inc and AAP Inc, you can compare the effects of market volatilities on Nasdaq and AAP 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 with a short position of AAP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq and AAP.
Diversification Opportunities for Nasdaq and AAP
Very good diversification
The 3 months correlation between Nasdaq and AAP is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and AAP Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAP Inc and Nasdaq 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 Inc are associated (or correlated) with AAP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAP Inc has no effect on the direction of Nasdaq i.e., Nasdaq and AAP go up and down completely randomly.
Pair Corralation between Nasdaq and AAP
Given the investment horizon of 90 days Nasdaq is expected to generate 18.17 times less return on investment than AAP. But when comparing it to its historical volatility, Nasdaq Inc is 32.13 times less risky than AAP. It trades about 0.24 of its potential returns per unit of risk. AAP Inc is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 0.03 in AAP Inc on August 29, 2024 and sell it today you would lose (0.01) from holding AAP Inc or give up 33.33% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.21% |
| Values | Daily Returns |
Nasdaq Inc vs. AAP Inc
Performance |
| Timeline |
| Nasdaq Inc |
| AAP Inc |
Nasdaq and AAP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nasdaq and AAP
The main advantage of trading using opposite Nasdaq and AAP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq position performs unexpectedly, AAP 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 AAP will offset losses from the drop in AAP's long position.The idea behind Nasdaq Inc and AAP Inc 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
Other Complementary Tools
| USA ETFs Find actively traded Exchange Traded Funds (ETF) in USA | |
| Equity Valuation Check real value of public entities based on technical and fundamental data | |
| Fundamentals Comparison Compare fundamentals across multiple equities to find investing opportunities | |
| Portfolio Center All portfolio management and optimization tools to improve performance of your portfolios | |
| Theme Ratings Determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance |