Correlation Between NYSE Composite and VanEck Oil

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

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

Diversification Opportunities for NYSE Composite and VanEck Oil

-0.53

Correlation Coefficient

NYSE Composite  VanEck Oil

Excellent diversification

The 3 months correlation between NYSE and VanEck is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and VanEck Oil Refiners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Oil Refiners 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 VanEck Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Oil Refiners has no effect on the direction of NYSE Composite i.e., NYSE Composite and VanEck Oil go up and down completely randomly.

Pair Corralation between NYSE Composite and VanEck Oil

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.69 times more return on investment than VanEck Oil. However, NYSE Composite is 1.46 times less risky than VanEck Oil. It trades about 0.08 of its potential returns per unit of risk. VanEck Oil Refiners is currently generating about 0.01 per unit of risk. If you would invest  1,521,826  in NYSE Composite on September 14, 2024 and sell it today you would earn a total of  455,083  from holding NYSE Composite or generate 29.9% return on investment over 90 days.

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

NYSE Composite  vs.  VanEck Oil Refiners

Pair Trading with NYSE Composite and VanEck Oil

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

The idea behind NYSE Composite and VanEck Oil Refiners 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.