Correlation Between NYSE Composite and Anything Tech

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

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

Diversification Opportunities for NYSE Composite and Anything Tech

-0.39

Correlation Coefficient

NYSE Composite  Anything Tech

Very good diversification

The 3 months correlation between NYSE and Anything is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Anything Tech Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anything Tech Media 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 Anything Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anything Tech Media has no effect on the direction of NYSE Composite i.e., NYSE Composite and Anything Tech go up and down completely randomly.

Pair Corralation between NYSE Composite and Anything Tech

Assuming the 90 days trading horizon NYSE Composite is expected to generate 16.05 times less return on investment than Anything Tech. But when comparing it to its historical volatility, NYSE Composite is 34.34 times less risky than Anything Tech. It trades about 0.16 of its potential returns per unit of risk. Anything Tech Media is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  0.05  in Anything Tech Media on September 4, 2024 and sell it today you would lose (0.01) from holding Anything Tech Media or give up 20.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

NYSE Composite  vs.  Anything Tech Media

Pair Trading with NYSE Composite and Anything Tech

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

The idea behind NYSE Composite and Anything Tech Media 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.