Correlation Between NYSE Composite and Crew Energy

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

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

Diversification Opportunities for NYSE Composite and Crew Energy

0.69

Correlation Coefficient

NYSE Composite  Crew Energy

Poor diversification

The 3 months correlation between NYSE and Crew is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Crew Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crew Energy 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 Crew Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crew Energy has no effect on the direction of NYSE Composite i.e., NYSE Composite and Crew Energy go up and down completely randomly.

Pair Corralation between NYSE Composite and Crew Energy

Assuming the 90 days trading horizon NYSE Composite is expected to generate 4.41 times less return on investment than Crew Energy. But when comparing it to its historical volatility, NYSE Composite is 2.36 times less risky than Crew Energy. It trades about 0.17 of its potential returns per unit of risk. Crew Energy is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  496.00  in Crew Energy on September 3, 2024 and sell it today you would earn a total of  55.00  from holding Crew Energy or generate 11.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	37.5%
Values	Daily Returns

NYSE Composite  vs.  Crew Energy

Pair Trading with NYSE Composite and Crew Energy

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

The idea behind NYSE Composite and Crew Energy 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.