Correlation Between Nasdaq and Franchise
Can any of the company-specific risk be diversified away by investing in both Nasdaq and Franchise 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 Franchise into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nasdaq Inc and Franchise Group, you can compare the effects of market volatilities on Nasdaq and Franchise 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 Franchise. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq and Franchise.
Diversification Opportunities for Nasdaq and Franchise
Poor diversification
The 3 months correlation between Nasdaq and Franchise is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Franchise Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franchise Group 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 Franchise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franchise Group has no effect on the direction of Nasdaq i.e., Nasdaq and Franchise go up and down completely randomly.
Pair Corralation between Nasdaq and Franchise
If you would invest 7,072 in Nasdaq Inc on August 28, 2024 and sell it today you would earn a total of 1,080 from holding Nasdaq Inc or generate 15.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 1.59% |
| Values | Daily Returns |
Nasdaq Inc vs. Franchise Group
Performance |
| Timeline |
| Nasdaq Inc |
| Franchise Group |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Nasdaq and Franchise Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nasdaq and Franchise
The main advantage of trading using opposite Nasdaq and Franchise positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq position performs unexpectedly, Franchise 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 Franchise will offset losses from the drop in Franchise's long position.The idea behind Nasdaq Inc and Franchise Group 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.| Franchise vs. Compania Cervecerias Unidas | Franchise vs. Boston Beer | Franchise vs. Westrock Coffee | Franchise vs. Entravision Communications |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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