Correlation Between NYSE Composite and Bridgford Foods

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

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

Diversification Opportunities for NYSE Composite and Bridgford Foods

-0.05

Correlation Coefficient

NYSE Composite  Bridgford Foods

Good diversification

The 3 months correlation between NYSE and Bridgford is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Bridgford Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridgford Foods 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 Bridgford Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridgford Foods has no effect on the direction of NYSE Composite i.e., NYSE Composite and Bridgford Foods go up and down completely randomly.

Pair Corralation between NYSE Composite and Bridgford Foods

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.46 times more return on investment than Bridgford Foods. However, NYSE Composite is 2.15 times less risky than Bridgford Foods. It trades about 0.02 of its potential returns per unit of risk. Bridgford Foods is currently generating about -0.23 per unit of risk. If you would invest  1,907,793  in NYSE Composite on December 30, 2024 and sell it today you would earn a total of  19,237  from holding NYSE Composite or generate 1.01% return on investment over 90 days.

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

NYSE Composite  vs.  Bridgford Foods

Pair Trading with NYSE Composite and Bridgford Foods

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

The idea behind NYSE Composite and Bridgford Foods 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.