Correlation Between NYSE Composite and UGAS

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

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

Diversification Opportunities for NYSE Composite and UGAS

0.32

Correlation Coefficient

NYSE Composite  UGAS

Weak diversification

The 3 months correlation between NYSE and UGAS is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and UGAS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UGAS 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 UGAS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UGAS has no effect on the direction of NYSE Composite i.e., NYSE Composite and UGAS go up and down completely randomly.

Pair Corralation between NYSE Composite and UGAS

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.33 times more return on investment than UGAS. However, NYSE Composite is 3.05 times less risky than UGAS. It trades about 0.02 of its potential returns per unit of risk. UGAS is currently generating about -0.08 per unit of risk. If you would invest  1,907,793  in NYSE Composite on December 29, 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	Very Weak
Accuracy	95.31%
Values	Daily Returns

NYSE Composite  vs.  UGAS

Pair Trading with NYSE Composite and UGAS

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

The idea behind NYSE Composite and UGAS 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.