Correlation Between NYSE Composite and Massachusetts Investors

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

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

Diversification Opportunities for NYSE Composite and Massachusetts Investors

0.79

Correlation Coefficient

NYSE Composite  Massachusetts Investors

Poor diversification

The 3 months correlation between NYSE and Massachusetts is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Massachusetts Investors Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Massachusetts Investors 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 Massachusetts Investors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Massachusetts Investors has no effect on the direction of NYSE Composite i.e., NYSE Composite and Massachusetts Investors go up and down completely randomly.

Pair Corralation between NYSE Composite and Massachusetts Investors

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.06 times less return on investment than Massachusetts Investors. But when comparing it to its historical volatility, NYSE Composite is 1.31 times less risky than Massachusetts Investors. It trades about 0.06 of its potential returns per unit of risk. Massachusetts Investors Trust is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,814  in Massachusetts Investors Trust on October 7, 2024 and sell it today you would earn a total of  606.00  from holding Massachusetts Investors Trust or generate 21.54% 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.  Massachusetts Investors Trust

Pair Trading with NYSE Composite and Massachusetts Investors

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

The idea behind NYSE Composite and Massachusetts Investors Trust 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.