Correlation Between NYSE Composite and Anchor Risk

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

By analyzing existing cross correlation between NYSE Composite and Anchor Risk Managed, you can compare the effects of market volatilities on NYSE Composite and Anchor Risk 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 Anchor Risk. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and Anchor Risk.

Diversification Opportunities for NYSE Composite and Anchor Risk

0.88

Correlation Coefficient

NYSE Composite  Anchor Risk

Very poor diversification

The 3 months correlation between NYSE and Anchor is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Anchor Risk Managed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anchor Risk Managed 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 Anchor Risk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anchor Risk Managed has no effect on the direction of NYSE Composite i.e., NYSE Composite and Anchor Risk go up and down completely randomly.

Pair Corralation between NYSE Composite and Anchor Risk

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the Anchor Risk. In addition to that, NYSE Composite is 1.78 times more volatile than Anchor Risk Managed. It trades about -0.07 of its total potential returns per unit of risk. Anchor Risk Managed is currently generating about 0.02 per unit of volatility. If you would invest  1,041  in Anchor Risk Managed on September 12, 2024 and sell it today you would earn a total of  1.00  from holding Anchor Risk Managed or generate 0.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

NYSE Composite  vs.  Anchor Risk Managed

Pair Trading with NYSE Composite and Anchor Risk

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

The idea behind NYSE Composite and Anchor Risk Managed 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.