Correlation Between NYSE Composite and Catalystmillburn

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

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

Diversification Opportunities for NYSE Composite and Catalystmillburn

0.63

Correlation Coefficient

NYSE Composite  Catalystmillburn

Poor diversification

The 3 months correlation between NYSE and Catalystmillburn is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Catalystmillburn Dynamic Commo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Catalystmillburn Dyn 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 Catalystmillburn. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Catalystmillburn Dyn has no effect on the direction of NYSE Composite i.e., NYSE Composite and Catalystmillburn go up and down completely randomly.

Pair Corralation between NYSE Composite and Catalystmillburn

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.52 times more return on investment than Catalystmillburn. However, NYSE Composite is 1.94 times less risky than Catalystmillburn. It trades about -0.29 of its potential returns per unit of risk. Catalystmillburn Dynamic Commodity is currently generating about -0.25 per unit of risk. If you would invest  2,015,744  in NYSE Composite on October 6, 2024 and sell it today you would lose (90,315) from holding NYSE Composite or give up 4.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

NYSE Composite  vs.  Catalystmillburn Dynamic Commo

Pair Trading with NYSE Composite and Catalystmillburn

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

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