Correlation Between NYSE Composite and AETNA

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

By analyzing existing cross correlation between NYSE Composite and AETNA INC 7625, you can compare the effects of market volatilities on NYSE Composite and AETNA 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 AETNA. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and AETNA.

Diversification Opportunities for NYSE Composite and AETNA

-0.36

Correlation Coefficient

NYSE Composite  AETNA

Very good diversification

The 3 months correlation between NYSE and AETNA is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and AETNA INC 7625 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AETNA INC 7625 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 AETNA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AETNA INC 7625 has no effect on the direction of NYSE Composite i.e., NYSE Composite and AETNA go up and down completely randomly.

Pair Corralation between NYSE Composite and AETNA

Assuming the 90 days trading horizon NYSE Composite is expected to generate 8.0 times less return on investment than AETNA. But when comparing it to its historical volatility, NYSE Composite is 4.51 times less risky than AETNA. It trades about 0.01 of its potential returns per unit of risk. AETNA INC 7625 is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  10,371  in AETNA INC 7625 on September 17, 2024 and sell it today you would earn a total of  19.00  from holding AETNA INC 7625 or generate 0.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	80.0%
Values	Daily Returns

NYSE Composite  vs.  AETNA INC 7625

Pair Trading with NYSE Composite and AETNA

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

The idea behind NYSE Composite and AETNA INC 7625 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.