Correlation Between NYSE Composite and NYSE Declining

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

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

Diversification Opportunities for NYSE Composite and NYSE Declining

-0.11

Correlation Coefficient

NYSE Composite  NYSE Declining

Good diversification

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

Pair Corralation between NYSE Composite and NYSE Declining

Assuming the 90 days trading horizon NYSE Composite is expected to generate 5938.71 times less return on investment than NYSE Declining. But when comparing it to its historical volatility, NYSE Composite is 92.98 times less risky than NYSE Declining. It trades about 0.0 of its potential returns per unit of risk. NYSE Declining Volume is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  224,972  in NYSE Declining Volume on October 1, 2024 and sell it today you would lose (36,992) from holding NYSE Declining Volume or give up 16.44% of portfolio value over 90 days.

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

NYSE Composite  vs.  NYSE Declining Volume

Pair Trading with NYSE Composite and NYSE Declining

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

The idea behind NYSE Composite and NYSE Declining Volume 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.