Correlation Between LONDON STEXUNSPADRS12 and Nasdaq

Can any of the company-specific risk be diversified away by investing in both LONDON STEXUNSPADRS12 and Nasdaq 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 LONDON STEXUNSPADRS12 and Nasdaq into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between LONDON STEXUNSPADRS12 and Nasdaq Inc, you can compare the effects of market volatilities on LONDON STEXUNSPADRS12 and Nasdaq 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 LONDON STEXUNSPADRS12 with a short position of Nasdaq. Check out your portfolio center. Please also check ongoing floating volatility patterns of LONDON STEXUNSPADRS12 and Nasdaq.

Diversification Opportunities for LONDON STEXUNSPADRS12 and Nasdaq

0.89

Correlation Coefficient

LONDON STEXUNSPADRS12  Nasdaq

Very poor diversification

The 3 months correlation between LONDON and Nasdaq is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding LONDON STEXUNSPADRS12 and Nasdaq Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq Inc and LONDON STEXUNSPADRS12 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 LONDON STEXUNSPADRS12 are associated (or correlated) with Nasdaq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq Inc has no effect on the direction of LONDON STEXUNSPADRS12 i.e., LONDON STEXUNSPADRS12 and Nasdaq go up and down completely randomly.

Pair Corralation between LONDON STEXUNSPADRS12 and Nasdaq

Assuming the 90 days trading horizon LONDON STEXUNSPADRS12 is expected to generate 1.61 times less return on investment than Nasdaq. In addition to that, LONDON STEXUNSPADRS12 is 1.41 times more volatile than Nasdaq Inc. It trades about 0.09 of its total potential returns per unit of risk. Nasdaq Inc is currently generating about 0.21 per unit of volatility. If you would invest  6,529  in Nasdaq Inc on September 17, 2024 and sell it today you would earn a total of  1,142  from holding Nasdaq Inc or generate 17.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

LONDON STEXUNSPADRS12  vs.  Nasdaq Inc

LONDON STEXUNSPADRS12

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LONDON STEXUNSPADRS12 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, LONDON STEXUNSPADRS12 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Nasdaq Inc

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nasdaq reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LONDON STEXUNSPADRS12 and Nasdaq

The main advantage of trading using opposite LONDON STEXUNSPADRS12 and Nasdaq positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LONDON STEXUNSPADRS12 position performs unexpectedly, Nasdaq 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 will offset losses from the drop in Nasdaq's long position.

The idea behind LONDON STEXUNSPADRS12 and Nasdaq Inc 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.