Correlation Between NYSE Composite and Incitec Pivot

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Can any of the company-specific risk be diversified away by investing in both NYSE Composite and Incitec Pivot 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 Incitec Pivot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NYSE Composite and Incitec Pivot Ltd, you can compare the effects of market volatilities on NYSE Composite and Incitec Pivot 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 Incitec Pivot. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and Incitec Pivot.

Diversification Opportunities for NYSE Composite and Incitec Pivot

0.23
  Correlation Coefficient

Modest diversification

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

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the Incitec Pivot. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 4.06 times less risky than Incitec Pivot. The index trades about -0.29 of its potential returns per unit of risk. The Incitec Pivot Ltd is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  196.00  in Incitec Pivot Ltd on October 6, 2024 and sell it today you would earn a total of  25.00  from holding Incitec Pivot Ltd or generate 12.76% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

NYSE Composite  vs.  Incitec Pivot Ltd

 Performance 
       Timeline  

NYSE Composite and Incitec Pivot Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NYSE Composite and Incitec Pivot

The main advantage of trading using opposite NYSE Composite and Incitec Pivot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite position performs unexpectedly, Incitec Pivot 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 Incitec Pivot will offset losses from the drop in Incitec Pivot's long position.
The idea behind NYSE Composite and Incitec Pivot Ltd 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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