Correlation Between NYSE Composite and COVANTA

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

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

Diversification Opportunities for NYSE Composite and COVANTA

0.56

Correlation Coefficient

NYSE Composite  COVANTA

Very weak diversification

The 3 months correlation between NYSE and COVANTA is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and COVANTA HLDG P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COVANTA HLDG P 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 COVANTA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COVANTA HLDG P has no effect on the direction of NYSE Composite i.e., NYSE Composite and COVANTA go up and down completely randomly.

Pair Corralation between NYSE Composite and COVANTA

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.66 times more return on investment than COVANTA. However, NYSE Composite is 1.51 times less risky than COVANTA. It trades about 0.09 of its potential returns per unit of risk. COVANTA HLDG P is currently generating about -0.02 per unit of risk. If you would invest  1,663,938  in NYSE Composite on October 9, 2024 and sell it today you would earn a total of  257,450  from holding NYSE Composite or generate 15.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	91.5%
Values	Daily Returns

NYSE Composite  vs.  COVANTA HLDG P

Pair Trading with NYSE Composite and COVANTA

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

The idea behind NYSE Composite and COVANTA HLDG P 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.