Correlation Between NYSE Composite and GSI Technology

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

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

Diversification Opportunities for NYSE Composite and GSI Technology

0.4

Correlation Coefficient

NYSE Composite  GSI Technology

Very weak diversification

The 3 months correlation between NYSE and GSI is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and GSI Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GSI Technology 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 GSI Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GSI Technology has no effect on the direction of NYSE Composite i.e., NYSE Composite and GSI Technology go up and down completely randomly.

Pair Corralation between NYSE Composite and GSI Technology

Assuming the 90 days trading horizon NYSE Composite is expected to generate 8.99 times less return on investment than GSI Technology. But when comparing it to its historical volatility, NYSE Composite is 16.71 times less risky than GSI Technology. It trades about 0.07 of its potential returns per unit of risk. GSI Technology is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  193.00  in GSI Technology on December 28, 2024 and sell it today you would earn a total of  19.00  from holding GSI Technology or generate 9.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

NYSE Composite  vs.  GSI Technology

Pair Trading with NYSE Composite and GSI Technology

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

The idea behind NYSE Composite and GSI Technology 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.