Correlation Between Nasdaq and American International

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

By analyzing existing cross correlation between Nasdaq Inc and American International Group, you can compare the effects of market volatilities on Nasdaq and American International 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 American International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq and American International.

Diversification Opportunities for Nasdaq and American International

0.64

Correlation Coefficient

Nasdaq  American International

Poor diversification

The 3 months correlation between Nasdaq and American is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and American International Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American International 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 American International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American International has no effect on the direction of Nasdaq i.e., Nasdaq and American International go up and down completely randomly.

Pair Corralation between Nasdaq and American International

Given the investment horizon of 90 days Nasdaq Inc is expected to under-perform the American International. In addition to that, Nasdaq is 1.01 times more volatile than American International Group. It trades about -0.26 of its total potential returns per unit of risk. American International Group is currently generating about -0.16 per unit of volatility. If you would invest  7,254  in American International Group on September 29, 2024 and sell it today you would lose (239.00) from holding American International Group or give up 3.29% of portfolio value over 90 days.

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

Nasdaq Inc  vs.  American International Group

Nasdaq Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Nasdaq may actually be approaching a critical reversion point that can send shares even higher in January 2025.

American International

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Nasdaq and American International

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

The idea behind Nasdaq Inc and American International 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.

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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.