Correlation Between NYSE Composite and SideChannel

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

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

Diversification Opportunities for NYSE Composite and SideChannel

-0.16

Correlation Coefficient

NYSE Composite  SideChannel

Good diversification

The 3 months correlation between NYSE and SideChannel is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and SideChannel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SideChannel 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 SideChannel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SideChannel has no effect on the direction of NYSE Composite i.e., NYSE Composite and SideChannel go up and down completely randomly.

Pair Corralation between NYSE Composite and SideChannel

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the SideChannel. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 27.26 times less risky than SideChannel. The index trades about 0.0 of its potential returns per unit of risk. The SideChannel is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  4.40  in SideChannel on September 15, 2024 and sell it today you would lose (0.41) from holding SideChannel or give up 9.32% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

NYSE Composite  vs.  SideChannel

Pair Trading with NYSE Composite and SideChannel

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

The idea behind NYSE Composite and SideChannel 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.