Correlation Between NYSE Composite and Amgen

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

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

Diversification Opportunities for NYSE Composite and Amgen

0.2

Correlation Coefficient

NYSE Composite  Amgen

Modest diversification

The 3 months correlation between NYSE and Amgen is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Amgen Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amgen Inc and NYSE Composite 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 NYSE Composite are associated (or correlated) with Amgen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amgen Inc has no effect on the direction of NYSE Composite i.e., NYSE Composite and Amgen go up and down completely randomly.

Pair Corralation between NYSE Composite and Amgen

Assuming the 90 days trading horizon NYSE Composite is expected to generate 14.97 times less return on investment than Amgen. But when comparing it to its historical volatility, NYSE Composite is 1.85 times less risky than Amgen. It trades about 0.02 of its potential returns per unit of risk. Amgen Inc is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  25,722  in Amgen Inc on December 29, 2024 and sell it today you would earn a total of  4,855  from holding Amgen Inc or generate 18.87% return on investment over 90 days.

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

NYSE Composite  vs.  Amgen Inc

Pair Trading with NYSE Composite and Amgen

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

The idea behind NYSE Composite and Amgen 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.