Correlation Between Nasdaq and State Street

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

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

Diversification Opportunities for Nasdaq and State Street

0.66

Correlation Coefficient

Nasdaq  State Street

Poor diversification

The 3 months correlation between Nasdaq and State is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and State Street Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Corp 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 State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street Corp has no effect on the direction of Nasdaq i.e., Nasdaq and State Street go up and down completely randomly.

Pair Corralation between Nasdaq and State Street

Given the investment horizon of 90 days Nasdaq Inc is expected to under-perform the State Street. But the stock apears to be less risky and, when comparing its historical volatility, Nasdaq Inc is 1.1 times less risky than State Street. The stock trades about -0.04 of its potential returns per unit of risk. The State Street Corp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  7,316  in State Street Corp on January 20, 2024 and sell it today you would earn a total of  21.00  from holding State Street Corp or generate 0.29% 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.  State Street Corp

Nasdaq Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 4 (%) 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.

State Street Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Street Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, State Street is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Nasdaq and State Street

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

The idea behind Nasdaq Inc and State Street Corp 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.