Correlation Between NYSE Composite and Stralem Equity

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

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

Diversification Opportunities for NYSE Composite and Stralem Equity

0.96

Correlation Coefficient

NYSE Composite  Stralem Equity

Almost no diversification

The 3 months correlation between NYSE and Stralem is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Stralem Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stralem Equity 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 Stralem Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stralem Equity has no effect on the direction of NYSE Composite i.e., NYSE Composite and Stralem Equity go up and down completely randomly.

Pair Corralation between NYSE Composite and Stralem Equity

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.91 times less return on investment than Stralem Equity. But when comparing it to its historical volatility, NYSE Composite is 1.15 times less risky than Stralem Equity. It trades about 0.06 of its potential returns per unit of risk. Stralem Equity Fund is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,860  in Stralem Equity Fund on December 5, 2024 and sell it today you would earn a total of  255.00  from holding Stralem Equity Fund or generate 8.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.19%
Values	Daily Returns

NYSE Composite  vs.  Stralem Equity Fund

Pair Trading with NYSE Composite and Stralem Equity

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

The idea behind NYSE Composite and Stralem Equity Fund 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.