Correlation Between NYSE Composite and Aristotle Funds

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

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

Diversification Opportunities for NYSE Composite and Aristotle Funds

0.83

Correlation Coefficient

NYSE Composite  Aristotle Funds

Very poor diversification

The 3 months correlation between NYSE and Aristotle is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Aristotle Funds Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aristotle Funds Series 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 Aristotle Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aristotle Funds Series has no effect on the direction of NYSE Composite i.e., NYSE Composite and Aristotle Funds go up and down completely randomly.

Pair Corralation between NYSE Composite and Aristotle Funds

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.55 times more return on investment than Aristotle Funds. However, NYSE Composite is 1.81 times less risky than Aristotle Funds. It trades about -0.03 of its potential returns per unit of risk. Aristotle Funds Series is currently generating about -0.02 per unit of risk. If you would invest  1,950,655  in NYSE Composite on September 24, 2024 and sell it today you would lose (29,944) from holding NYSE Composite or give up 1.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

NYSE Composite  vs.  Aristotle Funds Series

Pair Trading with NYSE Composite and Aristotle Funds

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

The idea behind NYSE Composite and Aristotle Funds Series 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.