Correlation Between NYSE Composite and Toray Industries

Can any of the company-specific risk be diversified away by investing in both NYSE Composite and Toray 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 Toray 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 Toray Industries, you can compare the effects of market volatilities on NYSE Composite and Toray 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 Toray Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and Toray Industries.

Diversification Opportunities for NYSE Composite and Toray Industries

-0.02

Correlation Coefficient

NYSE Composite  Toray Industries

Good diversification

The 3 months correlation between NYSE and Toray is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Toray Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toray 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 Toray Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toray Industries has no effect on the direction of NYSE Composite i.e., NYSE Composite and Toray Industries go up and down completely randomly.

Pair Corralation between NYSE Composite and Toray Industries

Assuming the 90 days trading horizon NYSE Composite is expected to generate 4.68 times less return on investment than Toray Industries. But when comparing it to its historical volatility, NYSE Composite is 1.24 times less risky than Toray Industries. It trades about 0.03 of its potential returns per unit of risk. Toray Industries is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  646.00  in Toray Industries on December 23, 2024 and sell it today you would earn a total of  44.00  from holding Toray Industries or generate 6.81% return on investment over 90 days.

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

NYSE Composite  vs.  Toray Industries

Pair Trading with NYSE Composite and Toray Industries

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

The idea behind NYSE Composite and Toray 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.