Correlation Between NYSE Composite and BM European

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

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

Diversification Opportunities for NYSE Composite and BM European

-0.42

Correlation Coefficient

NYSE Composite  BM European

Very good diversification

The 3 months correlation between NYSE and BMRRY is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and BM European Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BM European Value 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 BM European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BM European Value has no effect on the direction of NYSE Composite i.e., NYSE Composite and BM European go up and down completely randomly.

Pair Corralation between NYSE Composite and BM European

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the BM European. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 2.17 times less risky than BM European. The index trades about -0.3 of its potential returns per unit of risk. The BM European Value is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,733  in BM European Value on September 27, 2024 and sell it today you would earn a total of  138.00  from holding BM European Value or generate 7.96% 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.  BM European Value

Pair Trading with NYSE Composite and BM European

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

The idea behind NYSE Composite and BM European Value 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.