Correlation Between NYSE Composite and Domini Impact

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

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

Diversification Opportunities for NYSE Composite and Domini Impact

-0.49

Correlation Coefficient

NYSE Composite  Domini Impact

Very good diversification

The 3 months correlation between NYSE and Domini is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Domini Impact Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Domini Impact Bond 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 Domini Impact. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Domini Impact Bond has no effect on the direction of NYSE Composite i.e., NYSE Composite and Domini Impact go up and down completely randomly.

Pair Corralation between NYSE Composite and Domini Impact

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.8 times more return on investment than Domini Impact. However, NYSE Composite is 1.8 times more volatile than Domini Impact Bond. It trades about 0.08 of its potential returns per unit of risk. Domini Impact Bond is currently generating about -0.18 per unit of risk. If you would invest  1,922,578  in NYSE Composite on September 17, 2024 and sell it today you would earn a total of  50,359  from holding NYSE Composite or generate 2.62% 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.  Domini Impact Bond

Pair Trading with NYSE Composite and Domini Impact

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

The idea behind NYSE Composite and Domini Impact Bond 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.