Correlation Between NYSE Composite and Parametric Intl

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

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

Diversification Opportunities for NYSE Composite and Parametric Intl

-0.58

Correlation Coefficient

NYSE Composite  Parametric Intl

Excellent diversification

The 3 months correlation between NYSE and Parametric is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Parametric Intl Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parametric Intl Equity 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 Parametric Intl. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parametric Intl Equity has no effect on the direction of NYSE Composite i.e., NYSE Composite and Parametric Intl go up and down completely randomly.

Pair Corralation between NYSE Composite and Parametric Intl

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.97 times more return on investment than Parametric Intl. However, NYSE Composite is 1.03 times less risky than Parametric Intl. It trades about 0.08 of its potential returns per unit of risk. Parametric Intl Equity is currently generating about 0.06 per unit of risk. If you would invest  1,503,732  in NYSE Composite on September 18, 2024 and sell it today you would earn a total of  459,036  from holding NYSE Composite or generate 30.53% 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.  Parametric Intl Equity

Pair Trading with NYSE Composite and Parametric Intl

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

The idea behind NYSE Composite and Parametric Intl Equity 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.