Correlation Between NYSE Composite and New Leaf

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

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

Diversification Opportunities for NYSE Composite and New Leaf

0.11

Correlation Coefficient

NYSE Composite  New Leaf

Average diversification

The 3 months correlation between NYSE and New is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and New Leaf Ventures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Leaf Ventures 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 New Leaf. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Leaf Ventures has no effect on the direction of NYSE Composite i.e., NYSE Composite and New Leaf go up and down completely randomly.

Pair Corralation between NYSE Composite and New Leaf

Assuming the 90 days trading horizon NYSE Composite is expected to generate 90.31 times less return on investment than New Leaf. But when comparing it to its historical volatility, NYSE Composite is 70.59 times less risky than New Leaf. It trades about 0.24 of its potential returns per unit of risk. New Leaf Ventures is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  0.30  in New Leaf Ventures on October 26, 2024 and sell it today you would earn a total of  0.40  from holding New Leaf Ventures or generate 133.33% return on investment over 90 days.

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

NYSE Composite  vs.  New Leaf Ventures

Pair Trading with NYSE Composite and New Leaf

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

The idea behind NYSE Composite and New Leaf Ventures 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.