Correlation Between NYSE Composite and Northeast Indiana

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

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

Diversification Opportunities for NYSE Composite and Northeast Indiana

0.2

Correlation Coefficient

NYSE Composite  Northeast Indiana

Modest diversification

The 3 months correlation between NYSE and Northeast is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Northeast Indiana Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northeast Indiana 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 Northeast Indiana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northeast Indiana Bancorp has no effect on the direction of NYSE Composite i.e., NYSE Composite and Northeast Indiana go up and down completely randomly.

Pair Corralation between NYSE Composite and Northeast Indiana

If you would invest  1,790,225  in NYSE Composite on September 15, 2024 and sell it today you would earn a total of  182,712  from holding NYSE Composite or generate 10.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	0.79%
Values	Daily Returns

NYSE Composite  vs.  Northeast Indiana Bancorp

Pair Trading with NYSE Composite and Northeast Indiana

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

The idea behind NYSE Composite and Northeast Indiana 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.