Correlation Between NYSE Composite and OLT

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

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

Diversification Opportunities for NYSE Composite and OLT

-0.44

Correlation Coefficient

NYSE Composite  OLT

Very good diversification

The 3 months correlation between NYSE and OLT is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and OLT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OLT 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 OLT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OLT has no effect on the direction of NYSE Composite i.e., NYSE Composite and OLT go up and down completely randomly.

Pair Corralation between NYSE Composite and OLT

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.04 times more return on investment than OLT. However, NYSE Composite is 23.19 times less risky than OLT. It trades about 0.17 of its potential returns per unit of risk. OLT is currently generating about -0.01 per unit of risk. If you would invest  1,901,742  in NYSE Composite on September 2, 2024 and sell it today you would earn a total of  125,462  from holding NYSE Composite or generate 6.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.97%
Values	Daily Returns

NYSE Composite  vs.  OLT

Pair Trading with NYSE Composite and OLT

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

The idea behind NYSE Composite and OLT 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.