Correlation Between NYSE Composite and KKRS

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

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

Diversification Opportunities for NYSE Composite and KKRS

-0.31

Correlation Coefficient

NYSE Composite  KKRS

Very good diversification

The 3 months correlation between NYSE and KKRS is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and KKRS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KKRS 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 KKRS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KKRS has no effect on the direction of NYSE Composite i.e., NYSE Composite and KKRS go up and down completely randomly.

Pair Corralation between NYSE Composite and KKRS

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the KKRS. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 1.97 times less risky than KKRS. The index trades about -0.36 of its potential returns per unit of risk. The KKRS is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  1,911  in KKRS on September 24, 2024 and sell it today you would lose (34.00) from holding KKRS or give up 1.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

NYSE Composite  vs.  KKRS

Pair Trading with NYSE Composite and KKRS

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

The idea behind NYSE Composite and KKRS 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.