Correlation Between NYSE Composite and Life Time

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

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

Diversification Opportunities for NYSE Composite and Life Time

0.63

Correlation Coefficient

NYSE Composite  Life Time

Poor diversification

The 3 months correlation between NYSE and Life is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Life Time Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Life Time Group 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 Life Time. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Life Time Group has no effect on the direction of NYSE Composite i.e., NYSE Composite and Life Time go up and down completely randomly.

Pair Corralation between NYSE Composite and Life Time

Assuming the 90 days trading horizon NYSE Composite is expected to generate 29.17 times less return on investment than Life Time. But when comparing it to its historical volatility, NYSE Composite is 2.96 times less risky than Life Time. It trades about 0.02 of its potential returns per unit of risk. Life Time Group is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  2,188  in Life Time Group on December 28, 2024 and sell it today you would earn a total of  862.00  from holding Life Time Group or generate 39.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

NYSE Composite  vs.  Life Time Group

Pair Trading with NYSE Composite and Life Time

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

The idea behind NYSE Composite and Life Time Group 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.