Correlation Between Nasdaq and NYSE

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Can any of the company-specific risk be diversified away by investing in both Nasdaq and NYSE 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 NYSE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nasdaq Inc and NYSE, you can compare the effects of market volatilities on Nasdaq and NYSE 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 NYSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq and NYSE.

Diversification Opportunities for Nasdaq and NYSE

0.63
  Correlation Coefficient

Poor diversification

The 3 months correlation between Nasdaq and NYSE is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and NYSE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NYSE 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 NYSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NYSE has no effect on the direction of Nasdaq i.e., Nasdaq and NYSE go up and down completely randomly.
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Pair Corralation between Nasdaq and NYSE

Given the investment horizon of 90 days Nasdaq Inc is expected to generate 1.1 times more return on investment than NYSE. However, Nasdaq is 1.1 times more volatile than NYSE. It trades about -0.1 of its potential returns per unit of risk. NYSE is currently generating about -0.16 per unit of risk. If you would invest  6,062  in Nasdaq Inc on July 5, 2022 and sell it today you would lose (229.00)  from holding Nasdaq Inc or give up 3.78% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Nasdaq Inc  vs.  NYSE

 Performance (%) 
       Timeline  

Nasdaq and NYSE Volatility Contrast

   Predicted Return Density   
       Returns  

Nasdaq Inc

Pair trading matchups for Nasdaq

NYSE

Pair trading matchups for NYSE

The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against NYSE as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. NYSE's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, NYSE's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to NYSE.

Pair Trading with Nasdaq and NYSE

The main advantage of trading using opposite Nasdaq and NYSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq position performs unexpectedly, NYSE 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 NYSE will offset losses from the drop in NYSE's long position.
Nasdaq vs. Amazon Inc
The idea behind Nasdaq Inc and NYSE 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.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against NYSE as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. NYSE's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, NYSE's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to NYSE.
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..

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