Correlation Between NYSE Composite and Defence Therapeutics

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

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

Diversification Opportunities for NYSE Composite and Defence Therapeutics

0.42

Correlation Coefficient

NYSE Composite  Defence Therapeutics

Very weak diversification

The 3 months correlation between NYSE and Defence is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Defence Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defence Therapeutics 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 Defence Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defence Therapeutics has no effect on the direction of NYSE Composite i.e., NYSE Composite and Defence Therapeutics go up and down completely randomly.

Pair Corralation between NYSE Composite and Defence Therapeutics

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the Defence Therapeutics. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 22.96 times less risky than Defence Therapeutics. The index trades about -0.28 of its potential returns per unit of risk. The Defence Therapeutics is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  41.00  in Defence Therapeutics on October 7, 2024 and sell it today you would lose (2.00) from holding Defence Therapeutics or give up 4.88% of portfolio value over 90 days.

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

NYSE Composite  vs.  Defence Therapeutics

Pair Trading with NYSE Composite and Defence Therapeutics

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

The idea behind NYSE Composite and Defence Therapeutics 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..