Correlation Between Nasdaq and SPDR SP

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

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

Diversification Opportunities for Nasdaq and SPDR SP

0.81

Correlation Coefficient

Nasdaq  SPDR SP

Very poor diversification

The 3 months correlation between Nasdaq and SPDR is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and SPDR SP Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Global 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Global has no effect on the direction of Nasdaq i.e., Nasdaq and SPDR SP go up and down completely randomly.

Pair Corralation between Nasdaq and SPDR SP

Given the investment horizon of 90 days Nasdaq Inc is expected to under-perform the SPDR SP. In addition to that, Nasdaq is 1.27 times more volatile than SPDR SP Global. It trades about -0.12 of its total potential returns per unit of risk. SPDR SP Global is currently generating about -0.1 per unit of volatility. If you would invest  1,936  in SPDR SP Global on September 21, 2024 and sell it today you would lose (37.00) from holding SPDR SP Global or give up 1.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

Nasdaq Inc  vs.  SPDR SP Global

Nasdaq Inc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Nasdaq is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

SPDR SP Global

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Global are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, SPDR SP is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Nasdaq and SPDR SP

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

The idea behind Nasdaq Inc and SPDR SP Global 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.