Correlation Between Nasdaq and WEC Energy

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

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

Diversification Opportunities for Nasdaq and WEC Energy

0.56

Correlation Coefficient

Nasdaq  WEC Energy

Very weak diversification

The 3 months correlation between Nasdaq and WEC is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and WEC Energy Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WEC Energy Group 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 WEC Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WEC Energy Group has no effect on the direction of Nasdaq i.e., Nasdaq and WEC Energy go up and down completely randomly.

Pair Corralation between Nasdaq and WEC Energy

Given the investment horizon of 90 days Nasdaq is expected to generate 8.63 times less return on investment than WEC Energy. But when comparing it to its historical volatility, Nasdaq Inc is 1.09 times less risky than WEC Energy. It trades about 0.05 of its potential returns per unit of risk. WEC Energy Group is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  7,889  in WEC Energy Group on February 14, 2024 and sell it today you would earn a total of  623.00  from holding WEC Energy Group or generate 7.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Nasdaq Inc  vs.  WEC Energy Group

Nasdaq Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Nasdaq may actually be approaching a critical reversion point that can send shares even higher in June 2024.

WEC Energy Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WEC Energy Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, WEC Energy may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Nasdaq and WEC Energy

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

The idea behind Nasdaq Inc and WEC Energy Group 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.