Correlation Between NYSE Composite and Virtus WMC

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

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

Diversification Opportunities for NYSE Composite and Virtus WMC

-0.62

Correlation Coefficient

NYSE Composite  Virtus WMC

Excellent diversification

The 3 months correlation between NYSE and Virtus is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Virtus WMC International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virtus WMC International 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 Virtus WMC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virtus WMC International has no effect on the direction of NYSE Composite i.e., NYSE Composite and Virtus WMC go up and down completely randomly.

Pair Corralation between NYSE Composite and Virtus WMC

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.84 times more return on investment than Virtus WMC. However, NYSE Composite is 1.18 times less risky than Virtus WMC. It trades about 0.07 of its potential returns per unit of risk. Virtus WMC International is currently generating about -0.11 per unit of risk. If you would invest  1,925,638  in NYSE Composite on September 14, 2024 and sell it today you would earn a total of  47,299  from holding NYSE Composite or generate 2.46% return on investment over 90 days.

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

NYSE Composite  vs.  Virtus WMC International

Pair Trading with NYSE Composite and Virtus WMC

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

The idea behind NYSE Composite and Virtus WMC International 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.