Correlation Between NYSE Composite and Canada Carbon

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

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

Diversification Opportunities for NYSE Composite and Canada Carbon

-0.57

Correlation Coefficient

NYSE Composite  Canada Carbon

Excellent diversification

The 3 months correlation between NYSE and Canada is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Canada Carbon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canada Carbon 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 Canada Carbon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canada Carbon has no effect on the direction of NYSE Composite i.e., NYSE Composite and Canada Carbon go up and down completely randomly.

Pair Corralation between NYSE Composite and Canada Carbon

Assuming the 90 days trading horizon NYSE Composite is expected to generate 440.38 times less return on investment than Canada Carbon. But when comparing it to its historical volatility, NYSE Composite is 214.72 times less risky than Canada Carbon. It trades about 0.07 of its potential returns per unit of risk. Canada Carbon is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  0.99  in Canada Carbon on September 15, 2024 and sell it today you would earn a total of  0.51  from holding Canada Carbon or generate 51.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.97%
Values	Daily Returns

NYSE Composite  vs.  Canada Carbon

Pair Trading with NYSE Composite and Canada Carbon

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

The idea behind NYSE Composite and Canada Carbon 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..