Correlation Between NYSE Composite and Yellow Pages

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

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

Diversification Opportunities for NYSE Composite and Yellow Pages

0.23

Correlation Coefficient

NYSE Composite  Yellow Pages

Modest diversification

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

Pair Corralation between NYSE Composite and Yellow Pages

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the Yellow Pages. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 1.26 times less risky than Yellow Pages. The index trades about -0.36 of its potential returns per unit of risk. The Yellow Pages Limited is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  744.00  in Yellow Pages Limited on September 23, 2024 and sell it today you would earn a total of  46.00  from holding Yellow Pages Limited or generate 6.18% return on investment over 90 days.

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

NYSE Composite  vs.  Yellow Pages Limited

Pair Trading with NYSE Composite and Yellow Pages

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

The idea behind NYSE Composite and Yellow Pages Limited 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.