Correlation Between NYSE Composite and FS Bancorp

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

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

Diversification Opportunities for NYSE Composite and FS Bancorp

0.32

Correlation Coefficient

NYSE Composite  FS Bancorp

Weak diversification

The 3 months correlation between NYSE and FXLG is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and FS Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FS Bancorp 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 FS Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FS Bancorp has no effect on the direction of NYSE Composite i.e., NYSE Composite and FS Bancorp go up and down completely randomly.

Pair Corralation between NYSE Composite and FS Bancorp

Assuming the 90 days trading horizon NYSE Composite is expected to generate 6.36 times less return on investment than FS Bancorp. In addition to that, NYSE Composite is 1.51 times more volatile than FS Bancorp. It trades about 0.02 of its total potential returns per unit of risk. FS Bancorp is currently generating about 0.23 per unit of volatility. If you would invest  3,180  in FS Bancorp on December 28, 2024 and sell it today you would earn a total of  245.00  from holding FS Bancorp or generate 7.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

NYSE Composite  vs.  FS Bancorp

Pair Trading with NYSE Composite and FS Bancorp

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

The idea behind NYSE Composite and FS Bancorp 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.