Correlation Between NYSE Composite and PMA

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

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

Diversification Opportunities for NYSE Composite and PMA

0.17

Correlation Coefficient

NYSE Composite  PMA

Average diversification

The 3 months correlation between NYSE and PMA is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and PMA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PMA 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 PMA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PMA has no effect on the direction of NYSE Composite i.e., NYSE Composite and PMA go up and down completely randomly.

Pair Corralation between NYSE Composite and PMA

Assuming the 90 days trading horizon NYSE Composite is expected to generate 2151.51 times less return on investment than PMA. But when comparing it to its historical volatility, NYSE Composite is 201.37 times less risky than PMA. It trades about 0.02 of its potential returns per unit of risk. PMA is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  0.00  in PMA on December 29, 2024 and sell it today you would earn a total of  0.00  from holding PMA or generate 7.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.31%
Values	Daily Returns

NYSE Composite  vs.  PMA

Pair Trading with NYSE Composite and PMA

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

The idea behind NYSE Composite and PMA 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.