Correlation Between NYSE Composite and Electronic Systems

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

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

Diversification Opportunities for NYSE Composite and Electronic Systems

-0.46

Correlation Coefficient

NYSE Composite  Electronic Systems

Very good diversification

The 3 months correlation between NYSE and Electronic is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Electronic Systems Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Systems 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 Electronic Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electronic Systems has no effect on the direction of NYSE Composite i.e., NYSE Composite and Electronic Systems go up and down completely randomly.

Pair Corralation between NYSE Composite and Electronic Systems

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.11 times more return on investment than Electronic Systems. However, NYSE Composite is 8.82 times less risky than Electronic Systems. It trades about 0.17 of its potential returns per unit of risk. Electronic Systems Technology is currently generating about -0.19 per unit of risk. If you would invest  1,901,742  in NYSE Composite on September 3, 2024 and sell it today you would earn a total of  125,462  from holding NYSE Composite or generate 6.6% 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.  Electronic Systems Technology

Pair Trading with NYSE Composite and Electronic Systems

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

The idea behind NYSE Composite and Electronic Systems Technology 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.