Correlation Between Western Asset and Nasdaq

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

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

Diversification Opportunities for Western Asset and Nasdaq

0.84

Correlation Coefficient

Western Asset  Nasdaq

Very poor diversification

The 3 months correlation between Western and Nasdaq is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Investment and Nasdaq Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq Inc and Western Asset 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 Western Asset Investment 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 Western Asset i.e., Western Asset and Nasdaq go up and down completely randomly.

Pair Corralation between Western Asset and Nasdaq

Considering the 90-day investment horizon Western Asset is expected to generate 7.15 times less return on investment than Nasdaq. But when comparing it to its historical volatility, Western Asset Investment is 2.98 times less risky than Nasdaq. It trades about 0.12 of its potential returns per unit of risk. Nasdaq Inc is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  7,784  in Nasdaq Inc on May 6, 2025 and sell it today you would earn a total of  1,733  from holding Nasdaq Inc or generate 22.26% return on investment over 90 days.

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

Western Asset Investment  vs.  Nasdaq Inc

Western Asset Investment

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Investment are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, Western Asset is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Nasdaq Inc

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Nasdaq reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Asset and Nasdaq

The main advantage of trading using opposite Western Asset and Nasdaq positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset 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 Western Asset Investment 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.

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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.