Correlation Between NYSE Composite and Technology Telecommunicatio

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

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

Diversification Opportunities for NYSE Composite and Technology Telecommunicatio

0.5

Correlation Coefficient

NYSE Composite  Technology Telecommunicatio

Very weak diversification

The 3 months correlation between NYSE and Technology is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Technology Telecommunication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Technology Telecommunicatio 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 Technology Telecommunicatio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Technology Telecommunicatio has no effect on the direction of NYSE Composite i.e., NYSE Composite and Technology Telecommunicatio go up and down completely randomly.

Pair Corralation between NYSE Composite and Technology Telecommunicatio

Assuming the 90 days trading horizon NYSE Composite is expected to generate 2.81 times more return on investment than Technology Telecommunicatio. However, NYSE Composite is 2.81 times more volatile than Technology Telecommunication. It trades about 0.07 of its potential returns per unit of risk. Technology Telecommunication is currently generating about 0.12 per unit of risk. If you would invest  1,919,556  in NYSE Composite on September 18, 2024 and sell it today you would earn a total of  43,212  from holding NYSE Composite or generate 2.25% return on investment over 90 days.

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

NYSE Composite  vs.  Technology Telecommunication

Pair Trading with NYSE Composite and Technology Telecommunicatio

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

The idea behind NYSE Composite and Technology Telecommunication 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.