Correlation Between NYSE Composite and Westrock Coffee

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

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

Diversification Opportunities for NYSE Composite and Westrock Coffee

-0.23

Correlation Coefficient

NYSE Composite  Westrock Coffee

Very good diversification

The 3 months correlation between NYSE and Westrock is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Westrock Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westrock Coffee 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 Westrock Coffee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westrock Coffee has no effect on the direction of NYSE Composite i.e., NYSE Composite and Westrock Coffee go up and down completely randomly.

Pair Corralation between NYSE Composite and Westrock Coffee

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.08 times more return on investment than Westrock Coffee. However, NYSE Composite is 12.34 times less risky than Westrock Coffee. It trades about 0.18 of its potential returns per unit of risk. Westrock Coffee is currently generating about -0.08 per unit of risk. If you would invest  1,887,802  in NYSE Composite on September 5, 2024 and sell it today you would earn a total of  131,058  from holding NYSE Composite or generate 6.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	46.88%
Values	Daily Returns

NYSE Composite  vs.  Westrock Coffee

Pair Trading with NYSE Composite and Westrock Coffee

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

The idea behind NYSE Composite and Westrock Coffee 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.