Correlation Between NYSE Composite and Gnma Fund

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

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

Diversification Opportunities for NYSE Composite and Gnma Fund

0.28

Correlation Coefficient

NYSE Composite  Gnma Fund

Modest diversification

The 3 months correlation between NYSE and Gnma is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Gnma Fund C in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gnma Fund C 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 Gnma Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gnma Fund C has no effect on the direction of NYSE Composite i.e., NYSE Composite and Gnma Fund go up and down completely randomly.

Pair Corralation between NYSE Composite and Gnma Fund

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.06 times less return on investment than Gnma Fund. In addition to that, NYSE Composite is 2.31 times more volatile than Gnma Fund C. It trades about 0.05 of its total potential returns per unit of risk. Gnma Fund C is currently generating about 0.13 per unit of volatility. If you would invest  912.00  in Gnma Fund C on December 20, 2024 and sell it today you would earn a total of  25.00  from holding Gnma Fund C or generate 2.74% return on investment over 90 days.

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

NYSE Composite  vs.  Gnma Fund C

Pair Trading with NYSE Composite and Gnma Fund

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

The idea behind NYSE Composite and Gnma Fund C 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.