Correlation Between NYSE Composite and Gold Springs

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

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

Diversification Opportunities for NYSE Composite and Gold Springs

-0.23

Correlation Coefficient

NYSE Composite  Gold Springs

Very good diversification

The 3 months correlation between NYSE and Gold is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Gold Springs Resource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Springs Resource 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 Gold Springs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Springs Resource has no effect on the direction of NYSE Composite i.e., NYSE Composite and Gold Springs go up and down completely randomly.

Pair Corralation between NYSE Composite and Gold Springs

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.71 times less return on investment than Gold Springs. But when comparing it to its historical volatility, NYSE Composite is 11.41 times less risky than Gold Springs. It trades about 0.17 of its potential returns per unit of risk. Gold Springs Resource is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  7.00  in Gold Springs Resource on August 31, 2024 and sell it today you would lose (0.20) from holding Gold Springs Resource or give up 2.86% 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.  Gold Springs Resource

Pair Trading with NYSE Composite and Gold Springs

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

The idea behind NYSE Composite and Gold Springs Resource 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.