Correlation Between NYSE Composite and IShares Aaa

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

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

Diversification Opportunities for NYSE Composite and IShares Aaa

0.24

Correlation Coefficient

NYSE Composite  IShares Aaa

Modest diversification

The 3 months correlation between NYSE and IShares is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and iShares Aaa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Aaa 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 IShares Aaa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Aaa has no effect on the direction of NYSE Composite i.e., NYSE Composite and IShares Aaa go up and down completely randomly.

Pair Corralation between NYSE Composite and IShares Aaa

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.62 times less return on investment than IShares Aaa. In addition to that, NYSE Composite is 2.55 times more volatile than iShares Aaa . It trades about 0.02 of its total potential returns per unit of risk. iShares Aaa is currently generating about 0.1 per unit of volatility. If you would invest  4,654  in iShares Aaa on December 29, 2024 and sell it today you would earn a total of  90.00  from holding iShares Aaa or generate 1.93% 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.  iShares Aaa

Pair Trading with NYSE Composite and IShares Aaa

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

The idea behind NYSE Composite and iShares Aaa 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.