Correlation Between NYSE Composite and Western Sierra

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

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

Diversification Opportunities for NYSE Composite and Western Sierra

0.04

Correlation Coefficient

NYSE Composite  Western Sierra

Significant diversification

The 3 months correlation between NYSE and Western is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Western Sierra Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Sierra Mining 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 Western Sierra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Sierra Mining has no effect on the direction of NYSE Composite i.e., NYSE Composite and Western Sierra go up and down completely randomly.

Pair Corralation between NYSE Composite and Western Sierra

Assuming the 90 days trading horizon NYSE Composite is expected to generate 712.45 times less return on investment than Western Sierra. But when comparing it to its historical volatility, NYSE Composite is 157.53 times less risky than Western Sierra. It trades about 0.02 of its potential returns per unit of risk. Western Sierra Mining is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.35  in Western Sierra Mining on December 30, 2024 and sell it today you would lose (0.33) from holding Western Sierra Mining or give up 94.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.38%
Values	Daily Returns

NYSE Composite  vs.  Western Sierra Mining

Pair Trading with NYSE Composite and Western Sierra

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

The idea behind NYSE Composite and Western Sierra Mining 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..