Correlation Between NYSE Composite and 1933 Industries

Can any of the company-specific risk be diversified away by investing in both NYSE Composite and 1933 Industries 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 1933 Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NYSE Composite and 1933 Industries, you can compare the effects of market volatilities on NYSE Composite and 1933 Industries 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 1933 Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and 1933 Industries.

Diversification Opportunities for NYSE Composite and 1933 Industries

-0.63

Correlation Coefficient

NYSE Composite  1933 Industries

Excellent diversification

The 3 months correlation between NYSE and 1933 is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and 1933 Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 1933 Industries 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 1933 Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 1933 Industries has no effect on the direction of NYSE Composite i.e., NYSE Composite and 1933 Industries go up and down completely randomly.

Pair Corralation between NYSE Composite and 1933 Industries

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the 1933 Industries. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 49.4 times less risky than 1933 Industries. The index trades about -0.04 of its potential returns per unit of risk. The 1933 Industries is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  0.60  in 1933 Industries on September 14, 2024 and sell it today you would lose (0.07) from holding 1933 Industries or give up 11.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

NYSE Composite  vs.  1933 Industries

Pair Trading with NYSE Composite and 1933 Industries

The main advantage of trading using opposite NYSE Composite and 1933 Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite position performs unexpectedly, 1933 Industries 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 1933 Industries will offset losses from the drop in 1933 Industries' long position.

The idea behind NYSE Composite and 1933 Industries 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.