Correlation Between Intercontinental and Nasdaq

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

By analyzing existing cross correlation between Intercontinental Exchange and Nasdaq Inc, you can compare the effects of market volatilities on Intercontinental and 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 Intercontinental with a short position of Nasdaq. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intercontinental and Nasdaq.

Diversification Opportunities for Intercontinental and Nasdaq

0.21

Correlation Coefficient

Intercontinental  Nasdaq

Modest diversification

The 3 months correlation between Intercontinental and Nasdaq is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Intercontinental Exchange and Nasdaq Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq Inc and Intercontinental 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 Intercontinental Exchange are associated (or correlated) with Nasdaq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq Inc has no effect on the direction of Intercontinental i.e., Intercontinental and Nasdaq go up and down completely randomly.

Pair Corralation between Intercontinental and Nasdaq

Considering the 90-day investment horizon Intercontinental is expected to generate 1.06 times less return on investment than Nasdaq. But when comparing it to its historical volatility, Intercontinental Exchange is 1.12 times less risky than Nasdaq. It trades about 0.03 of its potential returns per unit of risk. Nasdaq Inc is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  5,068  in Nasdaq Inc on January 21, 2024 and sell it today you would earn a total of  967.00  from holding Nasdaq Inc or generate 19.08% return on investment over 90 days.

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

Intercontinental Exchange  vs.  Nasdaq Inc

Intercontinental Exchange

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Intercontinental Exchange are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Intercontinental is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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.

Pair Trading with Intercontinental and Nasdaq

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

The idea behind Intercontinental Exchange and Nasdaq Inc 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.