Correlation Between NYSE Composite and Domino’s Pizza

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

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

Diversification Opportunities for NYSE Composite and Domino’s Pizza

0.53

Correlation Coefficient

NYSE Composite  Domino’s Pizza

Very weak diversification

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

Pair Corralation between NYSE Composite and Domino’s Pizza

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.32 times more return on investment than Domino’s Pizza. However, NYSE Composite is 3.12 times less risky than Domino’s Pizza. It trades about 0.04 of its potential returns per unit of risk. Dominos Pizza Group is currently generating about -0.08 per unit of risk. If you would invest  1,956,073  in NYSE Composite on October 24, 2024 and sell it today you would earn a total of  33,286  from holding NYSE Composite or generate 1.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

NYSE Composite  vs.  Dominos Pizza Group

Pair Trading with NYSE Composite and Domino’s Pizza

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

The idea behind NYSE Composite and Dominos Pizza Group 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.