Correlation Between NYSE Composite and Catalyst Hedged

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

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

Diversification Opportunities for NYSE Composite and Catalyst Hedged

0.38

Correlation Coefficient

NYSE Composite  Catalyst Hedged

Weak diversification

The 3 months correlation between NYSE and Catalyst is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Catalyst Hedged Modity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Catalyst Hedged Modity 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 Catalyst Hedged. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Catalyst Hedged Modity has no effect on the direction of NYSE Composite i.e., NYSE Composite and Catalyst Hedged go up and down completely randomly.

Pair Corralation between NYSE Composite and Catalyst Hedged

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.75 times more return on investment than Catalyst Hedged. However, NYSE Composite is 1.33 times less risky than Catalyst Hedged. It trades about -0.03 of its potential returns per unit of risk. Catalyst Hedged Modity is currently generating about -0.18 per unit of risk. If you would invest  1,947,393  in NYSE Composite on October 1, 2024 and sell it today you would lose (23,545) from holding NYSE Composite or give up 1.21% of portfolio value over 90 days.

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

NYSE Composite  vs.  Catalyst Hedged Modity

Pair Trading with NYSE Composite and Catalyst Hedged

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

The idea behind NYSE Composite and Catalyst Hedged Modity 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.