Correlation Between NYSE Composite and SPDR Kensho

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

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

Diversification Opportunities for NYSE Composite and SPDR Kensho

0.9

Correlation Coefficient

NYSE Composite  SPDR Kensho

Almost no diversification

The 3 months correlation between NYSE and SPDR is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and SPDR Kensho Future in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Kensho Future 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 SPDR Kensho. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Kensho Future has no effect on the direction of NYSE Composite i.e., NYSE Composite and SPDR Kensho go up and down completely randomly.

Pair Corralation between NYSE Composite and SPDR Kensho

Assuming the 90 days trading horizon NYSE Composite is expected to generate 5.46 times less return on investment than SPDR Kensho. But when comparing it to its historical volatility, NYSE Composite is 2.02 times less risky than SPDR Kensho. It trades about 0.07 of its potential returns per unit of risk. SPDR Kensho Future is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  5,938  in SPDR Kensho Future on September 15, 2024 and sell it today you would earn a total of  850.00  from holding SPDR Kensho Future or generate 14.31% return on investment over 90 days.

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

NYSE Composite  vs.  SPDR Kensho Future

Pair Trading with NYSE Composite and SPDR Kensho

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

The idea behind NYSE Composite and SPDR Kensho Future 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.