Correlation Between NYSE Composite and Mutual Federal

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

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

Diversification Opportunities for NYSE Composite and Mutual Federal

-0.34

Correlation Coefficient

NYSE Composite  Mutual Federal

Very good diversification

The 3 months correlation between NYSE and Mutual is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Mutual Federal Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mutual Federal Bancorp 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 Mutual Federal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mutual Federal Bancorp has no effect on the direction of NYSE Composite i.e., NYSE Composite and Mutual Federal go up and down completely randomly.

Pair Corralation between NYSE Composite and Mutual Federal

Assuming the 90 days trading horizon NYSE Composite is expected to generate 2.12 times less return on investment than Mutual Federal. But when comparing it to its historical volatility, NYSE Composite is 4.53 times less risky than Mutual Federal. It trades about 0.06 of its potential returns per unit of risk. Mutual Federal Bancorp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  252.00  in Mutual Federal Bancorp on October 10, 2024 and sell it today you would earn a total of  48.00  from holding Mutual Federal Bancorp or generate 19.05% return on investment over 90 days.

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

NYSE Composite  vs.  Mutual Federal Bancorp

Pair Trading with NYSE Composite and Mutual Federal

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

The idea behind NYSE Composite and Mutual Federal Bancorp 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.