Correlation Between Five Year and Nasdaq 100
Can any of the company-specific risk be diversified away by investing in both Five Year 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 Five Year and Nasdaq 100 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Five Year Treasury Note and Nasdaq 100, you can compare the effects of market volatilities on Five Year 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 Five Year with a short position of Nasdaq 100. Check out your portfolio center. Please also check ongoing floating volatility patterns of Five Year and Nasdaq 100.
Diversification Opportunities for Five Year and Nasdaq 100
-0.11 | Correlation Coefficient |
Good diversification
The 3 months correlation between Five and Nasdaq is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Five Year Treasury Note and Nasdaq 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 and Five Year 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 Five Year Treasury Note 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 has no effect on the direction of Five Year i.e., Five Year and Nasdaq 100 go up and down completely randomly.
Pair Corralation between Five Year and Nasdaq 100
Assuming the 90 days horizon Five Year is expected to generate 6.91 times less return on investment than Nasdaq 100. But when comparing it to its historical volatility, Five Year Treasury Note is 4.43 times less risky than Nasdaq 100. It trades about 0.03 of its potential returns per unit of risk. Nasdaq 100 is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 2,125,850 in Nasdaq 100 on November 27, 2024 and sell it today you would earn a total of 18,075 from holding Nasdaq 100 or generate 0.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Five Year Treasury Note vs. Nasdaq 100
Performance |
| Timeline |
| Five Year Treasury |
| Nasdaq 100 |
Five Year and Nasdaq 100 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Five Year and Nasdaq 100
The main advantage of trading using opposite Five Year and Nasdaq 100 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Five Year 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.| Five Year vs. Gasoline RBOB | Five Year vs. Micro E mini Russell | Five Year vs. 10 Year T Note Futures | Five Year vs. Soybean Meal Futures |
| Nasdaq 100 vs. Gold Futures | Nasdaq 100 vs. 30 Year Treasury | Nasdaq 100 vs. 10 Year T Note Futures | Nasdaq 100 vs. Micro E mini Russell |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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