Correlation Between Nasdaq and Razor Labs

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

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

Diversification Opportunities for Nasdaq and Razor Labs

0.54

Correlation Coefficient

Nasdaq  Razor Labs

Very weak diversification

The 3 months correlation between Nasdaq and Razor is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Razor Labs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Razor Labs 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 Razor Labs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Razor Labs has no effect on the direction of Nasdaq i.e., Nasdaq and Razor Labs go up and down completely randomly.

Pair Corralation between Nasdaq and Razor Labs

Given the investment horizon of 90 days Nasdaq is expected to generate 5.99 times less return on investment than Razor Labs. But when comparing it to its historical volatility, Nasdaq Inc is 5.91 times less risky than Razor Labs. It trades about 0.13 of its potential returns per unit of risk. Razor Labs is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  43,480  in Razor Labs on September 25, 2024 and sell it today you would earn a total of  14,100  from holding Razor Labs or generate 32.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	71.88%
Values	Daily Returns

Nasdaq Inc  vs.  Razor Labs

Nasdaq Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 10 (%) 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.

Razor Labs

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Razor Labs are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Razor Labs sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nasdaq and Razor Labs

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

The idea behind Nasdaq Inc and Razor Labs 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.