Correlation Between Nasdaq and Tree Island

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

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

Diversification Opportunities for Nasdaq and Tree Island

0.74

Correlation Coefficient

Nasdaq  Tree Island

Poor diversification

The 3 months correlation between Nasdaq and Tree is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Tree Island Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tree Island Steel 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 Tree Island. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tree Island Steel has no effect on the direction of Nasdaq i.e., Nasdaq and Tree Island go up and down completely randomly.

Pair Corralation between Nasdaq and Tree Island

Given the investment horizon of 90 days Nasdaq is expected to generate 1.01 times less return on investment than Tree Island. But when comparing it to its historical volatility, Nasdaq Inc is 1.88 times less risky than Tree Island. It trades about 0.15 of its potential returns per unit of risk. Tree Island Steel is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  190.00  in Tree Island Steel on September 15, 2024 and sell it today you would earn a total of  17.00  from holding Tree Island Steel or generate 8.95% return on investment over 90 days.

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

Nasdaq Inc  vs.  Tree Island Steel

Nasdaq Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 11 (%) 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.

Tree Island Steel

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tree Island Steel are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Tree Island may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Nasdaq and Tree Island

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

The idea behind Nasdaq Inc and Tree Island Steel 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.