Correlation Between Sp 500 and Nasdaq 100
Can any of the company-specific risk be diversified away by investing in both Sp 500 and Nasdaq 100 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 Sp 500 and Nasdaq 100 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sp 500 Index and Nasdaq 100 Index Fund, you can compare the effects of market volatilities on Sp 500 and Nasdaq 100 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 Sp 500 with a short position of Nasdaq 100. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sp 500 and Nasdaq 100.
Diversification Opportunities for Sp 500 and Nasdaq 100
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between USSPX and Nasdaq is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Sp 500 Index and Nasdaq 100 Index Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 Index and Sp 500 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 Sp 500 Index are associated (or correlated) with Nasdaq 100. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 Index has no effect on the direction of Sp 500 i.e., Sp 500 and Nasdaq 100 go up and down completely randomly.
Pair Corralation between Sp 500 and Nasdaq 100
Assuming the 90 days horizon Sp 500 Index is expected to generate 0.69 times more return on investment than Nasdaq 100. However, Sp 500 Index is 1.44 times less risky than Nasdaq 100. It trades about 0.12 of its potential returns per unit of risk. Nasdaq 100 Index Fund is currently generating about 0.07 per unit of risk. If you would invest 6,421 in Sp 500 Index on August 25, 2024 and sell it today you would earn a total of 1,216 from holding Sp 500 Index or generate 18.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sp 500 Index vs. Nasdaq 100 Index Fund
Performance |
| Timeline |
| Sp 500 Index |
| Nasdaq 100 Index |
Sp 500 and Nasdaq 100 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sp 500 and Nasdaq 100
The main advantage of trading using opposite Sp 500 and Nasdaq 100 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sp 500 position performs unexpectedly, Nasdaq 100 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 100 will offset losses from the drop in Nasdaq 100's long position.| Sp 500 vs. Nasdaq 100 Index Fund | Sp 500 vs. International Fund International | Sp 500 vs. Science Technology Fund | Sp 500 vs. Aggressive Growth Fund |
| Nasdaq 100 vs. Sp 500 Index | Nasdaq 100 vs. Science Technology Fund | Nasdaq 100 vs. Extended Market Index | Nasdaq 100 vs. World Growth Fund |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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