Correlation Between NYSE Composite and Sonic Foundry

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

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

Diversification Opportunities for NYSE Composite and Sonic Foundry

0.54

Correlation Coefficient

NYSE Composite  Sonic Foundry

Very weak diversification

The 3 months correlation between NYSE and Sonic is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Sonic Foundry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonic Foundry 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 Sonic Foundry. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonic Foundry has no effect on the direction of NYSE Composite i.e., NYSE Composite and Sonic Foundry go up and down completely randomly.

Pair Corralation between NYSE Composite and Sonic Foundry

If you would invest  1,620,776  in NYSE Composite on October 3, 2024 and sell it today you would earn a total of  288,935  from holding NYSE Composite or generate 17.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	0.37%
Values	Daily Returns

NYSE Composite  vs.  Sonic Foundry

Pair Trading with NYSE Composite and Sonic Foundry

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

The idea behind NYSE Composite and Sonic Foundry 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.