Correlation Between NYSE Composite and BAB

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

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

Diversification Opportunities for NYSE Composite and BAB

0.54

Correlation Coefficient

NYSE Composite  BAB

Very weak diversification

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

Pair Corralation between NYSE Composite and BAB

Assuming the 90 days trading horizon NYSE Composite is expected to generate 6.82 times less return on investment than BAB. But when comparing it to its historical volatility, NYSE Composite is 6.17 times less risky than BAB. It trades about 0.07 of its potential returns per unit of risk. BAB Inc is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  76.00  in BAB Inc on September 16, 2024 and sell it today you would earn a total of  11.00  from holding BAB Inc or generate 14.47% return on investment over 90 days.

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

NYSE Composite  vs.  BAB Inc

Pair Trading with NYSE Composite and BAB

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

The idea behind NYSE Composite and BAB Inc 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.