Correlation Between NYSE Composite and Adobe Systems

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

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

Diversification Opportunities for NYSE Composite and Adobe Systems

-0.54

Correlation Coefficient

NYSE Composite  Adobe Systems

Excellent diversification

The 3 months correlation between NYSE and Adobe is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Adobe Systems Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adobe Systems 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 Adobe Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adobe Systems has no effect on the direction of NYSE Composite i.e., NYSE Composite and Adobe Systems go up and down completely randomly.

Pair Corralation between NYSE Composite and Adobe Systems

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.3 times more return on investment than Adobe Systems. However, NYSE Composite is 3.33 times less risky than Adobe Systems. It trades about 0.17 of its potential returns per unit of risk. Adobe Systems Incorporated is currently generating about -0.07 per unit of risk. If you would invest  1,901,742  in NYSE Composite on September 1, 2024 and sell it today you would earn a total of  125,462  from holding NYSE Composite or generate 6.6% return on investment over 90 days.

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

NYSE Composite  vs.  Adobe Systems Incorporated

Pair Trading with NYSE Composite and Adobe Systems

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

The idea behind NYSE Composite and Adobe Systems Incorporated 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 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..