Correlation Between NYSE Composite and Core Bond

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

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

Diversification Opportunities for NYSE Composite and Core Bond

-0.11

Correlation Coefficient

NYSE Composite  Core Bond

Good diversification

The 3 months correlation between NYSE and Core is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Core Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Bond Fund 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 Core Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Bond Fund has no effect on the direction of NYSE Composite i.e., NYSE Composite and Core Bond go up and down completely randomly.

Pair Corralation between NYSE Composite and Core Bond

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the Core Bond. In addition to that, NYSE Composite is 1.71 times more volatile than Core Bond Fund. It trades about -0.29 of its total potential returns per unit of risk. Core Bond Fund is currently generating about -0.17 per unit of volatility. If you would invest  1,092  in Core Bond Fund on September 22, 2024 and sell it today you would lose (16.00) from holding Core Bond Fund or give up 1.47% 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.  Core Bond Fund

Pair Trading with NYSE Composite and Core Bond

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

The idea behind NYSE Composite and Core Bond Fund 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..