Correlation Between DB Commodity and Nasdaq

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Can any of the company-specific risk be diversified away by investing in both DB Commodity 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 DB Commodity and Nasdaq into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DB Commodity Index and Nasdaq, you can compare the effects of market volatilities on DB Commodity 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 DB Commodity with a short position of Nasdaq. Check out your portfolio center. Please also check ongoing floating volatility patterns of DB Commodity and Nasdaq.

Diversification Opportunities for DB Commodity and Nasdaq

-0.17
  Correlation Coefficient

Good diversification

The 3 months correlation between DB Commodity and Nasdaq is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding DB Commodity Index and Nasdaq in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq and DB Commodity 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 DB Commodity Index 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 has no effect on the direction of DB Commodity i.e., DB Commodity and Nasdaq go up and down completely randomly.
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Pair Corralation between DB Commodity and Nasdaq

Considering the 90-day investment horizon DB Commodity Index is expected to under-perform the Nasdaq. But the etf apears to be less risky and, when comparing its historical volatility, DB Commodity Index is 1.01 times less risky than Nasdaq. The etf trades about -0.1 of its potential returns per unit of risk. The Nasdaq is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  1,137,260  in Nasdaq on May 10, 2022 and sell it today you would earn a total of  127,186  from holding Nasdaq or generate 11.18% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

DB Commodity Index  vs.  Nasdaq

 Performance (%) 
       Timeline  

DB Commodity and Nasdaq Volatility Contrast

   Predicted Return Density   
       Returns  

DB Commodity Index

Pair trading matchups for DB Commodity

Nasdaq

Pair trading matchups for Nasdaq

Salesforce vs. Nasdaq
Otp Bank vs. Nasdaq
Canadian National vs. Nasdaq
Alphabet vs. Nasdaq
Agnico-Eagle Mines vs. Nasdaq
Hyliion Hldg vs. Nasdaq
Coca Cola vs. Nasdaq
Enbridge vs. Nasdaq
Exxon vs. Nasdaq
Shopify vs. Nasdaq
Amazon vs. Nasdaq
Fidelity Select vs. Nasdaq
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Nasdaq as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Nasdaq's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Nasdaq's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Nasdaq.

Pair Trading with DB Commodity and Nasdaq

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

DB Commodity Index

Pair trading matchups for DB Commodity

The idea behind DB Commodity Index and Nasdaq 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.

Nasdaq

Pair trading matchups for Nasdaq

Salesforce vs. Nasdaq
Ultralife Corp vs. Nasdaq
Canadian National vs. Nasdaq
Coca Cola vs. Nasdaq
Amazon vs. Nasdaq
Tencent Holdings vs. Nasdaq
Enbridge vs. Nasdaq
Blink Charging vs. Nasdaq
Tesla vs. Nasdaq
Alphabet vs. Nasdaq
Exxon vs. Nasdaq
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Nasdaq as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Nasdaq's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Nasdaq's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Nasdaq.
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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