Correlation Between NYSE Composite and Eco Depot

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

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

Diversification Opportunities for NYSE Composite and Eco Depot

0.71

Correlation Coefficient

NYSE Composite  Eco Depot

Poor diversification

The 3 months correlation between NYSE and Eco is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Eco Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eco Depot 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 Eco Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eco Depot has no effect on the direction of NYSE Composite i.e., NYSE Composite and Eco Depot go up and down completely randomly.

Pair Corralation between NYSE Composite and Eco Depot

Assuming the 90 days trading horizon NYSE Composite is expected to generate 95.81 times less return on investment than Eco Depot. But when comparing it to its historical volatility, NYSE Composite is 23.61 times less risky than Eco Depot. It trades about 0.04 of its potential returns per unit of risk. Eco Depot is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  3.80  in Eco Depot on December 25, 2024 and sell it today you would earn a total of  3.00  from holding Eco Depot or generate 78.95% return on investment over 90 days.

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

NYSE Composite  vs.  Eco Depot

Pair Trading with NYSE Composite and Eco Depot

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

The idea behind NYSE Composite and Eco Depot 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.