Correlation Between NYSE Composite and Champlain Mid

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

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

Diversification Opportunities for NYSE Composite and Champlain Mid

0.93

Correlation Coefficient

NYSE Composite  Champlain Mid

Almost no diversification

The 3 months correlation between NYSE and Champlain is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Champlain Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Champlain Mid Cap 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 Champlain Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Champlain Mid Cap has no effect on the direction of NYSE Composite i.e., NYSE Composite and Champlain Mid go up and down completely randomly.

Pair Corralation between NYSE Composite and Champlain Mid

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.7 times less return on investment than Champlain Mid. But when comparing it to its historical volatility, NYSE Composite is 1.35 times less risky than Champlain Mid. It trades about 0.17 of its potential returns per unit of risk. Champlain Mid Cap is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  2,354  in Champlain Mid Cap on September 4, 2024 and sell it today you would earn a total of  264.00  from holding Champlain Mid Cap or generate 11.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

NYSE Composite  vs.  Champlain Mid Cap

Pair Trading with NYSE Composite and Champlain Mid

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

The idea behind NYSE Composite and Champlain Mid Cap 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.