Correlation Between Nasdaq and Bath Body

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

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

Diversification Opportunities for Nasdaq and Bath Body

0.71

Correlation Coefficient

Nasdaq  Bath Body

Poor diversification

The 3 months correlation between Nasdaq and Bath is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Bath Body Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bath Body Works 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 Bath Body. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bath Body Works has no effect on the direction of Nasdaq i.e., Nasdaq and Bath Body go up and down completely randomly.

Pair Corralation between Nasdaq and Bath Body

Given the investment horizon of 90 days Nasdaq is expected to generate 5.62 times less return on investment than Bath Body. But when comparing it to its historical volatility, Nasdaq Inc is 2.95 times less risky than Bath Body. It trades about 0.12 of its potential returns per unit of risk. Bath Body Works is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  3,968  in Bath Body Works on September 19, 2024 and sell it today you would earn a total of  1,894  from holding Bath Body Works or generate 47.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Nasdaq Inc  vs.  Bath Body Works

Nasdaq Inc

Risk-Adjusted Performance

9 of 100

Good

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.

Bath Body Works

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bath Body Works are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental drivers, Bath Body sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nasdaq and Bath Body

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

The idea behind Nasdaq Inc and Bath Body Works 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.