Correlation Between NYSE Composite and Simplify Volatility

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

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

Diversification Opportunities for NYSE Composite and Simplify Volatility

0.66

Correlation Coefficient

NYSE Composite  Simplify Volatility

Poor diversification

The 3 months correlation between NYSE and Simplify is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Simplify Volatility Premium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simplify Volatility 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 Simplify Volatility. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simplify Volatility has no effect on the direction of NYSE Composite i.e., NYSE Composite and Simplify Volatility go up and down completely randomly.

Pair Corralation between NYSE Composite and Simplify Volatility

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.54 times more return on investment than Simplify Volatility. However, NYSE Composite is 1.86 times less risky than Simplify Volatility. It trades about 0.02 of its potential returns per unit of risk. Simplify Volatility Premium is currently generating about -0.11 per unit of risk. If you would invest  1,907,793  in NYSE Composite on December 30, 2024 and sell it today you would earn a total of  19,237  from holding NYSE Composite or generate 1.01% return on investment over 90 days.

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

NYSE Composite  vs.  Simplify Volatility Premium

Pair Trading with NYSE Composite and Simplify Volatility

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

The idea behind NYSE Composite and Simplify Volatility Premium 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.