Correlation Between NYSE Composite and Core Plus

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

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

Diversification Opportunities for NYSE Composite and Core Plus

0.3

Correlation Coefficient

NYSE Composite  Core Plus

Weak diversification

The 3 months correlation between NYSE and Core is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Core Plus Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Plus Bond 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 Core Plus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Plus Bond has no effect on the direction of NYSE Composite i.e., NYSE Composite and Core Plus go up and down completely randomly.

Pair Corralation between NYSE Composite and Core Plus

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.55 times less return on investment than Core Plus. In addition to that, NYSE Composite is 2.72 times more volatile than Core Plus Bond. It trades about 0.04 of its total potential returns per unit of risk. Core Plus Bond is currently generating about 0.17 per unit of volatility. If you would invest  884.00  in Core Plus Bond on December 21, 2024 and sell it today you would earn a total of  26.00  from holding Core Plus Bond or generate 2.94% 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.  Core Plus Bond

Pair Trading with NYSE Composite and Core Plus

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

The idea behind NYSE Composite and Core Plus Bond 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.