Correlation Between Employers Holdings and NYSE Composite

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

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

Diversification Opportunities for Employers Holdings and NYSE Composite

0.83

Correlation Coefficient

Employers Holdings  NYSE Composite

Very poor diversification

The 3 months correlation between Employers and NYSE is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Employers Holdings and NYSE Composite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NYSE Composite and Employers Holdings 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 Employers Holdings are associated (or correlated) with NYSE Composite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NYSE Composite has no effect on the direction of Employers Holdings i.e., Employers Holdings and NYSE Composite go up and down completely randomly.

Pair Corralation between Employers Holdings and NYSE Composite

Considering the 90-day investment horizon Employers Holdings is expected to under-perform the NYSE Composite. In addition to that, Employers Holdings is 1.72 times more volatile than NYSE Composite. It trades about -0.02 of its total potential returns per unit of risk. NYSE Composite is currently generating about 0.05 per unit of volatility. If you would invest  1,964,577  in NYSE Composite on September 16, 2024 and sell it today you would earn a total of  8,360  from holding NYSE Composite or generate 0.43% return on investment over 90 days.

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

Employers Holdings  vs.  NYSE Composite

Pair Trading with Employers Holdings and NYSE Composite

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

The idea behind Employers Holdings and NYSE Composite 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.