Correlation Between NYSE Composite and NAPCO Security

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

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

Diversification Opportunities for NYSE Composite and NAPCO Security

0.19

Correlation Coefficient

NYSE Composite  NAPCO Security

Average diversification

The 3 months correlation between NYSE and NAPCO is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and NAPCO Security Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NAPCO Security Techn 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 NAPCO Security. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NAPCO Security Techn has no effect on the direction of NYSE Composite i.e., NYSE Composite and NAPCO Security go up and down completely randomly.

Pair Corralation between NYSE Composite and NAPCO Security

Assuming the 90 days trading horizon NYSE Composite is expected to generate 2.51 times less return on investment than NAPCO Security. But when comparing it to its historical volatility, NYSE Composite is 4.13 times less risky than NAPCO Security. It trades about 0.18 of its potential returns per unit of risk. NAPCO Security Technologies is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,438  in NAPCO Security Technologies on September 5, 2024 and sell it today you would earn a total of  566.00  from holding NAPCO Security Technologies or generate 16.46% 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.  NAPCO Security Technologies

Pair Trading with NYSE Composite and NAPCO Security

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

The idea behind NYSE Composite and NAPCO Security Technologies 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .