Correlation Between NYSE Composite and Diamond Offshore

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

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

Diversification Opportunities for NYSE Composite and Diamond Offshore

0.11

Correlation Coefficient

NYSE Composite  Diamond Offshore

Average diversification

The 3 months correlation between NYSE and Diamond is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Diamond Offshore Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Offshore Drilling 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 Diamond Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Offshore Drilling has no effect on the direction of NYSE Composite i.e., NYSE Composite and Diamond Offshore go up and down completely randomly.

Pair Corralation between NYSE Composite and Diamond Offshore

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.05 times more return on investment than Diamond Offshore. However, NYSE Composite is 20.21 times less risky than Diamond Offshore. It trades about 0.07 of its potential returns per unit of risk. Diamond Offshore Drilling is currently generating about -0.16 per unit of risk. If you would invest  1,802,817  in NYSE Composite on September 30, 2024 and sell it today you would earn a total of  121,031  from holding NYSE Composite or generate 6.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	36.51%
Values	Daily Returns

NYSE Composite  vs.  Diamond Offshore Drilling

Pair Trading with NYSE Composite and Diamond Offshore

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

The idea behind NYSE Composite and Diamond Offshore Drilling 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.