Correlation Between NYSE Composite and Clean Air

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

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

Diversification Opportunities for NYSE Composite and Clean Air

0.0

Correlation Coefficient

NYSE Composite  Clean Air

Pay attention - limited upside

The 3 months correlation between NYSE and Clean is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Clean Air Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clean Air Metals 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 Clean Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clean Air Metals has no effect on the direction of NYSE Composite i.e., NYSE Composite and Clean Air go up and down completely randomly.

Pair Corralation between NYSE Composite and Clean Air

Assuming the 90 days trading horizon NYSE Composite is expected to generate 11.22 times less return on investment than Clean Air. But when comparing it to its historical volatility, NYSE Composite is 16.66 times less risky than Clean Air. It trades about 0.17 of its potential returns per unit of risk. Clean Air Metals is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2.60  in Clean Air Metals on September 2, 2024 and sell it today you would earn a total of  1.50  from holding Clean Air Metals or generate 57.69% return on investment over 90 days.

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

NYSE Composite  vs.  Clean Air Metals

Pair Trading with NYSE Composite and Clean Air

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

The idea behind NYSE Composite and Clean Air Metals 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.

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 the ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.