Correlation Between NYSE Composite and Renewal Fuels

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

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

Diversification Opportunities for NYSE Composite and Renewal Fuels

-0.69

Correlation Coefficient

NYSE Composite  Renewal Fuels

Excellent diversification

The 3 months correlation between NYSE and Renewal is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Renewal Fuels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renewal Fuels 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 Renewal Fuels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renewal Fuels has no effect on the direction of NYSE Composite i.e., NYSE Composite and Renewal Fuels go up and down completely randomly.

Pair Corralation between NYSE Composite and Renewal Fuels

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.04 times more return on investment than Renewal Fuels. However, NYSE Composite is 22.84 times less risky than Renewal Fuels. It trades about 0.07 of its potential returns per unit of risk. Renewal Fuels is currently generating about -0.12 per unit of risk. If you would invest  1,925,638  in NYSE Composite on September 16, 2024 and sell it today you would earn a total of  47,299  from holding NYSE Composite or generate 2.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

NYSE Composite  vs.  Renewal Fuels

Pair Trading with NYSE Composite and Renewal Fuels

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

The idea behind NYSE Composite and Renewal Fuels 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 Global Correlations module to find global opportunities by holding instruments from different markets.