Correlation Between NYSE Composite and Nuveen NASDAQ

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

By analyzing existing cross correlation between NYSE Composite and Nuveen NASDAQ 100, you can compare the effects of market volatilities on NYSE Composite and Nuveen NASDAQ 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 NYSE Composite with a short position of Nuveen NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and Nuveen NASDAQ.

Diversification Opportunities for NYSE Composite and Nuveen NASDAQ

0.42

Correlation Coefficient

NYSE Composite  Nuveen NASDAQ

Very weak diversification

The 3 months correlation between NYSE and Nuveen is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Nuveen NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuveen NASDAQ 100 and NYSE Composite 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 NYSE Composite are associated (or correlated) with Nuveen NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuveen NASDAQ 100 has no effect on the direction of NYSE Composite i.e., NYSE Composite and Nuveen NASDAQ go up and down completely randomly.

Pair Corralation between NYSE Composite and Nuveen NASDAQ

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.22 times less return on investment than Nuveen NASDAQ. But when comparing it to its historical volatility, NYSE Composite is 1.32 times less risky than Nuveen NASDAQ. It trades about 0.1 of its potential returns per unit of risk. Nuveen NASDAQ 100 is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,119  in Nuveen NASDAQ 100 on September 23, 2024 and sell it today you would earn a total of  522.00  from holding Nuveen NASDAQ 100 or generate 24.63% return on investment over 90 days.

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

NYSE Composite  vs.  Nuveen NASDAQ 100

Pair Trading with NYSE Composite and Nuveen NASDAQ

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

The idea behind NYSE Composite and Nuveen NASDAQ 100 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.