Correlation Between NYSE Composite and Critic Clothing

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

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

Diversification Opportunities for NYSE Composite and Critic Clothing

-0.18

Correlation Coefficient

NYSE Composite  Critic Clothing

Good diversification

The 3 months correlation between NYSE and Critic is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Critic Clothing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Critic Clothing 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 Critic Clothing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Critic Clothing has no effect on the direction of NYSE Composite i.e., NYSE Composite and Critic Clothing go up and down completely randomly.

Pair Corralation between NYSE Composite and Critic Clothing

Assuming the 90 days trading horizon NYSE Composite is expected to generate 51.78 times less return on investment than Critic Clothing. But when comparing it to its historical volatility, NYSE Composite is 48.8 times less risky than Critic Clothing. It trades about 0.1 of its potential returns per unit of risk. Critic Clothing is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2.73  in Critic Clothing on September 13, 2024 and sell it today you would lose (0.73) from holding Critic Clothing or give up 26.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

NYSE Composite  vs.  Critic Clothing

Pair Trading with NYSE Composite and Critic Clothing

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

The idea behind NYSE Composite and Critic Clothing 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.