Correlation Between NYSE Composite and Multi Asset

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

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

Diversification Opportunities for NYSE Composite and Multi Asset

0.54

Correlation Coefficient

NYSE Composite  Multi Asset

Very weak diversification

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

Pair Corralation between NYSE Composite and Multi Asset

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the Multi Asset. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 1.85 times less risky than Multi Asset. The index trades about -0.3 of its potential returns per unit of risk. The Multi Asset Real Return is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  2,453  in Multi Asset Real Return on September 26, 2024 and sell it today you would lose (105.00) from holding Multi Asset Real Return or give up 4.28% of portfolio value over 90 days.

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

NYSE Composite  vs.  Multi Asset Real Return

Pair Trading with NYSE Composite and Multi Asset

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

The idea behind NYSE Composite and Multi Asset Real Return 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.