Correlation Between NYSE Composite and Credit Enhanced

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

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

Diversification Opportunities for NYSE Composite and Credit Enhanced

-0.13

Correlation Coefficient

NYSE Composite  Credit Enhanced

Good diversification

The 3 months correlation between NYSE and Credit is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Credit Enhanced Corts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Credit Enhanced Corts 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 Credit Enhanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Credit Enhanced Corts has no effect on the direction of NYSE Composite i.e., NYSE Composite and Credit Enhanced go up and down completely randomly.

Pair Corralation between NYSE Composite and Credit Enhanced

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.53 times more return on investment than Credit Enhanced. However, NYSE Composite is 1.88 times less risky than Credit Enhanced. It trades about 0.11 of its potential returns per unit of risk. Credit Enhanced Corts is currently generating about 0.03 per unit of risk. If you would invest  1,571,655  in NYSE Composite on October 11, 2024 and sell it today you would earn a total of  352,419  from holding NYSE Composite or generate 22.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.26%
Values	Daily Returns

NYSE Composite  vs.  Credit Enhanced Corts

Pair Trading with NYSE Composite and Credit Enhanced

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

The idea behind NYSE Composite and Credit Enhanced Corts 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.