Correlation Between NYSE Composite and Madison Diversified

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

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

Diversification Opportunities for NYSE Composite and Madison Diversified

0.96

Correlation Coefficient

NYSE Composite  Madison Diversified

Almost no diversification

The 3 months correlation between NYSE and Madison is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Madison Diversified Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Diversified 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 Madison Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Diversified has no effect on the direction of NYSE Composite i.e., NYSE Composite and Madison Diversified go up and down completely randomly.

Pair Corralation between NYSE Composite and Madison Diversified

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.73 times more return on investment than Madison Diversified. However, NYSE Composite is 1.73 times more volatile than Madison Diversified Income. It trades about 0.06 of its potential returns per unit of risk. Madison Diversified Income is currently generating about 0.04 per unit of risk. If you would invest  1,556,963  in NYSE Composite on October 10, 2024 and sell it today you would earn a total of  364,425  from holding NYSE Composite or generate 23.41% return on investment over 90 days.

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

NYSE Composite  vs.  Madison Diversified Income

Pair Trading with NYSE Composite and Madison Diversified

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

The idea behind NYSE Composite and Madison Diversified Income 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.