Correlation Between NYSE Composite and Mesa Laboratories

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

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

Diversification Opportunities for NYSE Composite and Mesa Laboratories

0.67

Correlation Coefficient

NYSE Composite  Mesa Laboratories

Poor diversification

The 3 months correlation between NYSE and Mesa is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Mesa Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mesa Laboratories 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 Mesa Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mesa Laboratories has no effect on the direction of NYSE Composite i.e., NYSE Composite and Mesa Laboratories go up and down completely randomly.

Pair Corralation between NYSE Composite and Mesa Laboratories

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.28 times more return on investment than Mesa Laboratories. However, NYSE Composite is 3.58 times less risky than Mesa Laboratories. It trades about 0.02 of its potential returns per unit of risk. Mesa Laboratories is currently generating about -0.04 per unit of risk. If you would invest  1,907,793  in NYSE Composite on December 28, 2024 and sell it today you would earn a total of  19,237  from holding NYSE Composite or generate 1.01% 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.  Mesa Laboratories

Pair Trading with NYSE Composite and Mesa Laboratories

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

The idea behind NYSE Composite and Mesa Laboratories 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.

Check out your portfolio center.

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.