Correlation Between Nasdaq and SPDR Galaxy
Can any of the company-specific risk be diversified away by investing in both Nasdaq and SPDR Galaxy 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 SPDR Galaxy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nasdaq Inc and SPDR Galaxy Transformative, you can compare the effects of market volatilities on Nasdaq and SPDR Galaxy 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 SPDR Galaxy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq and SPDR Galaxy.
Diversification Opportunities for Nasdaq and SPDR Galaxy
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Nasdaq and SPDR is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and SPDR Galaxy Transformative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Galaxy Transfor 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 SPDR Galaxy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Galaxy Transfor has no effect on the direction of Nasdaq i.e., Nasdaq and SPDR Galaxy go up and down completely randomly.
Pair Corralation between Nasdaq and SPDR Galaxy
Given the investment horizon of 90 days Nasdaq is expected to generate 25.08 times less return on investment than SPDR Galaxy. But when comparing it to its historical volatility, Nasdaq Inc is 2.79 times less risky than SPDR Galaxy. It trades about 0.01 of its potential returns per unit of risk. SPDR Galaxy Transformative is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 3,325 in SPDR Galaxy Transformative on September 18, 2024 and sell it today you would earn a total of 152.00 from holding SPDR Galaxy Transformative or generate 4.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nasdaq Inc vs. SPDR Galaxy Transformative
Performance |
| Timeline |
| Nasdaq Inc |
| SPDR Galaxy Transfor |
Nasdaq and SPDR Galaxy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nasdaq and SPDR Galaxy
The main advantage of trading using opposite Nasdaq and SPDR Galaxy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq position performs unexpectedly, SPDR Galaxy 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 SPDR Galaxy will offset losses from the drop in SPDR Galaxy's long position.The idea behind Nasdaq Inc and SPDR Galaxy Transformative 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.| SPDR Galaxy vs. Invesco DWA Utilities | SPDR Galaxy vs. Invesco Dynamic Large | SPDR Galaxy vs. SCOR PK | SPDR Galaxy vs. Morningstar Unconstrained Allocation |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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