Correlation Between NYSE Composite and Signature Bank

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

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

Diversification Opportunities for NYSE Composite and Signature Bank

-0.34

Correlation Coefficient

NYSE Composite  Signature Bank

Very good diversification

The 3 months correlation between NYSE and Signature is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Signature Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Signature Bank 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 Signature Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Signature Bank has no effect on the direction of NYSE Composite i.e., NYSE Composite and Signature Bank go up and down completely randomly.

Pair Corralation between NYSE Composite and Signature Bank

Assuming the 90 days trading horizon NYSE Composite is expected to generate 62.14 times less return on investment than Signature Bank. But when comparing it to its historical volatility, NYSE Composite is 42.14 times less risky than Signature Bank. It trades about 0.07 of its potential returns per unit of risk. Signature Bank is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,558  in Signature Bank on September 24, 2024 and sell it today you would lose (1,556) from holding Signature Bank or give up 99.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	27.77%
Values	Daily Returns

NYSE Composite  vs.  Signature Bank

Pair Trading with NYSE Composite and Signature Bank

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

The idea behind NYSE Composite and Signature Bank 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.