Correlation Between NYSE Composite and Mainstay Epoch

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

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

Diversification Opportunities for NYSE Composite and Mainstay Epoch

0.74

Correlation Coefficient

NYSE Composite  Mainstay Epoch

Poor diversification

The 3 months correlation between NYSE and Mainstay is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Mainstay Epoch Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mainstay Epoch Small 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 Mainstay Epoch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mainstay Epoch Small has no effect on the direction of NYSE Composite i.e., NYSE Composite and Mainstay Epoch go up and down completely randomly.

Pair Corralation between NYSE Composite and Mainstay Epoch

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the Mainstay Epoch. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 2.16 times less risky than Mainstay Epoch. The index trades about -0.08 of its potential returns per unit of risk. The Mainstay Epoch Small is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,414  in Mainstay Epoch Small on September 23, 2024 and sell it today you would earn a total of  144.00  from holding Mainstay Epoch Small or generate 5.97% 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.  Mainstay Epoch Small

Pair Trading with NYSE Composite and Mainstay Epoch

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

The idea behind NYSE Composite and Mainstay Epoch Small 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.