Correlation Between NYSE Composite and USA Compression

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

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

Diversification Opportunities for NYSE Composite and USA Compression

0.72

Correlation Coefficient

NYSE Composite  USA Compression

Poor diversification

The 3 months correlation between NYSE and USA is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and USA Compression Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on USA Compression Partners 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 USA Compression. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of USA Compression Partners has no effect on the direction of NYSE Composite i.e., NYSE Composite and USA Compression go up and down completely randomly.

Pair Corralation between NYSE Composite and USA Compression

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the USA Compression. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 2.5 times less risky than USA Compression. The index trades about -0.29 of its potential returns per unit of risk. The USA Compression Partners is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  2,393  in USA Compression Partners on September 28, 2024 and sell it today you would lose (87.00) from holding USA Compression Partners or give up 3.64% of portfolio value over 90 days.

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

NYSE Composite  vs.  USA Compression Partners

Pair Trading with NYSE Composite and USA Compression

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

The idea behind NYSE Composite and USA Compression Partners 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.