Correlation Between Nasdaq and Energy
Can any of the company-specific risk be diversified away by investing in both Nasdaq and Energy 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 Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nasdaq Inc and Energy and Water, you can compare the effects of market volatilities on Nasdaq and Energy 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 Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq and Energy.
Diversification Opportunities for Nasdaq and Energy
Excellent diversification
The 3 months correlation between Nasdaq and Energy is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Energy and Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy and Water 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 Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy and Water has no effect on the direction of Nasdaq i.e., Nasdaq and Energy go up and down completely randomly.
Pair Corralation between Nasdaq and Energy
Given the investment horizon of 90 days Nasdaq Inc is expected to generate 0.07 times more return on investment than Energy. However, Nasdaq Inc is 13.85 times less risky than Energy. It trades about 0.38 of its potential returns per unit of risk. Energy and Water is currently generating about -0.12 per unit of risk. If you would invest 7,589 in Nasdaq Inc on August 30, 2024 and sell it today you would earn a total of 716.00 from holding Nasdaq Inc or generate 9.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Nasdaq Inc vs. Energy and Water
Performance |
| Timeline |
| Nasdaq Inc |
| Energy and Water |
Nasdaq and Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nasdaq and Energy
The main advantage of trading using opposite Nasdaq and Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq position performs unexpectedly, Energy 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 Energy will offset losses from the drop in Energy's long position.The idea behind Nasdaq Inc and Energy and Water 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.| Energy vs. Vow ASA | Energy vs. Eestech | Energy vs. One World Universe | Energy vs. Bion Environmental Technologies |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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