Correlation Between NYSE Composite and Old Point

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

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

Diversification Opportunities for NYSE Composite and Old Point

-0.2

Correlation Coefficient

NYSE Composite  Old Point

Good diversification

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

Pair Corralation between NYSE Composite and Old Point

Assuming the 90 days trading horizon NYSE Composite is expected to generate 13.79 times less return on investment than Old Point. But when comparing it to its historical volatility, NYSE Composite is 2.01 times less risky than Old Point. It trades about 0.02 of its potential returns per unit of risk. Old Point Financial is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,557  in Old Point Financial on December 28, 2024 and sell it today you would earn a total of  437.00  from holding Old Point Financial or generate 17.09% return on investment over 90 days.

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

NYSE Composite  vs.  Old Point Financial

Pair Trading with NYSE Composite and Old Point

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

The idea behind NYSE Composite and Old Point Financial 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.