Correlation Between Asset Allocation and Nasdaq 100

Can any of the company-specific risk be diversified away by investing in both Asset Allocation and Nasdaq 100 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 Asset Allocation and Nasdaq 100 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Asset Allocation Fund and Nasdaq 100 Index Fund, you can compare the effects of market volatilities on Asset Allocation and Nasdaq 100 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 Asset Allocation with a short position of Nasdaq 100. Check out your portfolio center. Please also check ongoing floating volatility patterns of Asset Allocation and Nasdaq 100.

Diversification Opportunities for Asset Allocation and Nasdaq 100

0.99

Correlation Coefficient

Asset Allocation  Nasdaq 100

No risk reduction

The 3 months correlation between Asset and Nasdaq is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Asset Allocation Fund and Nasdaq 100 Index Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 Index and Asset Allocation 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 Asset Allocation Fund are associated (or correlated) with Nasdaq 100. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 Index has no effect on the direction of Asset Allocation i.e., Asset Allocation and Nasdaq 100 go up and down completely randomly.

Pair Corralation between Asset Allocation and Nasdaq 100

Assuming the 90 days horizon Asset Allocation is expected to generate 1.93 times less return on investment than Nasdaq 100. But when comparing it to its historical volatility, Asset Allocation Fund is 1.86 times less risky than Nasdaq 100. It trades about 0.4 of its potential returns per unit of risk. Nasdaq 100 Index Fund is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest  1,923  in Nasdaq 100 Index Fund on April 20, 2025 and sell it today you would earn a total of  570.00  from holding Nasdaq 100 Index Fund or generate 29.64% return on investment over 90 days.

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

Asset Allocation Fund  vs.  Nasdaq 100 Index Fund

Asset Allocation

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Asset Allocation Fund are ranked lower than 31 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Asset Allocation showed solid returns over the last few months and may actually be approaching a breakup point.

Nasdaq 100 Index

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 Index Fund are ranked lower than 32 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Nasdaq 100 showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Asset Allocation and Nasdaq 100

The main advantage of trading using opposite Asset Allocation and Nasdaq 100 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Asset Allocation position performs unexpectedly, Nasdaq 100 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 100 will offset losses from the drop in Nasdaq 100's long position.

The idea behind Asset Allocation Fund and Nasdaq 100 Index Fund 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.