Correlation Between NYSE Composite and Global Healthcare

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

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

Diversification Opportunities for NYSE Composite and Global Healthcare

0.1

Correlation Coefficient

NYSE Composite  Global Healthcare

Average diversification

The 3 months correlation between NYSE and Global is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Global Healthcare REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Healthcare REIT 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 Global Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Healthcare REIT has no effect on the direction of NYSE Composite i.e., NYSE Composite and Global Healthcare go up and down completely randomly.

Pair Corralation between NYSE Composite and Global Healthcare

Assuming the 90 days trading horizon NYSE Composite is expected to generate 36.56 times less return on investment than Global Healthcare. But when comparing it to its historical volatility, NYSE Composite is 11.65 times less risky than Global Healthcare. It trades about 0.02 of its potential returns per unit of risk. Global Healthcare REIT is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  188.00  in Global Healthcare REIT on December 29, 2024 and sell it today you would earn a total of  32.00  from holding Global Healthcare REIT or generate 17.02% return on investment over 90 days.

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

NYSE Composite  vs.  Global Healthcare REIT

Pair Trading with NYSE Composite and Global Healthcare

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

The idea behind NYSE Composite and Global Healthcare REIT 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.