Correlation Between NYSE Composite and Professionally Managed

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

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

Diversification Opportunities for NYSE Composite and Professionally Managed

0.75

Correlation Coefficient

NYSE Composite  Professionally Managed

Poor diversification

The 3 months correlation between NYSE and Professionally is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Professionally Managed Portfol in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Professionally Managed 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 Professionally Managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Professionally Managed has no effect on the direction of NYSE Composite i.e., NYSE Composite and Professionally Managed go up and down completely randomly.

Pair Corralation between NYSE Composite and Professionally Managed

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the Professionally Managed. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 1.77 times less risky than Professionally Managed. The index trades about -0.06 of its potential returns per unit of risk. The Professionally Managed Portfolios is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,197  in Professionally Managed Portfolios on October 11, 2024 and sell it today you would lose (27.00) from holding Professionally Managed Portfolios or give up 2.26% 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.  Professionally Managed Portfol

Pair Trading with NYSE Composite and Professionally Managed

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

The idea behind NYSE Composite and Professionally Managed Portfolios 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.

Check out your portfolio center.

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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.