Correlation Between NYSE Composite and Sodexo PK

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

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

Diversification Opportunities for NYSE Composite and Sodexo PK

-0.09

Correlation Coefficient

NYSE Composite  Sodexo PK

Good diversification

The 3 months correlation between NYSE and Sodexo is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Sodexo PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sodexo PK 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 Sodexo PK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sodexo PK has no effect on the direction of NYSE Composite i.e., NYSE Composite and Sodexo PK go up and down completely randomly.

Pair Corralation between NYSE Composite and Sodexo PK

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.4 times more return on investment than Sodexo PK. However, NYSE Composite is 2.48 times less risky than Sodexo PK. It trades about 0.19 of its potential returns per unit of risk. Sodexo PK is currently generating about -0.08 per unit of risk. If you would invest  1,909,542  in NYSE Composite on December 2, 2024 and sell it today you would earn a total of  93,277  from holding NYSE Composite or generate 4.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

NYSE Composite  vs.  Sodexo PK

Pair Trading with NYSE Composite and Sodexo PK

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

The idea behind NYSE Composite and Sodexo PK 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.