Correlation Between NYSE Composite and KINDER

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

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

Diversification Opportunities for NYSE Composite and KINDER

0.19

Correlation Coefficient

NYSE Composite  KINDER

Average diversification

The 3 months correlation between NYSE and KINDER is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and KINDER MORGAN ENERGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KINDER MORGAN ENERGY 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 KINDER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KINDER MORGAN ENERGY has no effect on the direction of NYSE Composite i.e., NYSE Composite and KINDER go up and down completely randomly.

Pair Corralation between NYSE Composite and KINDER

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.32 times more return on investment than KINDER. However, NYSE Composite is 3.14 times less risky than KINDER. It trades about -0.36 of its potential returns per unit of risk. KINDER MORGAN ENERGY is currently generating about -0.2 per unit of risk. If you would invest  2,012,345  in NYSE Composite on September 23, 2024 and sell it today you would lose (100,401) from holding NYSE Composite or give up 4.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	80.95%
Values	Daily Returns

NYSE Composite  vs.  KINDER MORGAN ENERGY

Pair Trading with NYSE Composite and KINDER

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

The idea behind NYSE Composite and KINDER MORGAN ENERGY 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.