Correlation Between Nasdaq and Global X

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

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

Diversification Opportunities for Nasdaq and Global X

0.7

Correlation Coefficient

Nasdaq  Global X

Poor diversification

The 3 months correlation between Nasdaq and Global is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Global X Cash in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X Cash 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 Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X Cash has no effect on the direction of Nasdaq i.e., Nasdaq and Global X go up and down completely randomly.

Pair Corralation between Nasdaq and Global X

Given the investment horizon of 90 days Nasdaq Inc is expected to generate 10.01 times more return on investment than Global X. However, Nasdaq is 10.01 times more volatile than Global X Cash. It trades about 0.05 of its potential returns per unit of risk. Global X Cash is currently generating about 0.13 per unit of risk. If you would invest  5,991  in Nasdaq Inc on September 23, 2024 and sell it today you would earn a total of  1,779  from holding Nasdaq Inc or generate 29.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Nasdaq Inc  vs.  Global X Cash

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.

Global X Cash

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global X Cash are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Global X is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Nasdaq and Global X

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

The idea behind Nasdaq Inc and Global X Cash 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.