Correlation Between NYSE Composite and Dragon Capital

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

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

Diversification Opportunities for NYSE Composite and Dragon Capital

-0.02

Correlation Coefficient

NYSE Composite  Dragon Capital

Good diversification

The 3 months correlation between NYSE and Dragon is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Dragon Capital Grp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dragon Capital Grp 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 Dragon Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dragon Capital Grp has no effect on the direction of NYSE Composite i.e., NYSE Composite and Dragon Capital go up and down completely randomly.

Pair Corralation between NYSE Composite and Dragon Capital

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the Dragon Capital. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 63.99 times less risky than Dragon Capital. The index trades about -0.04 of its potential returns per unit of risk. The Dragon Capital Grp is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  0.03  in Dragon Capital Grp on September 22, 2024 and sell it today you would earn a total of  0.00  from holding Dragon Capital Grp or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

NYSE Composite  vs.  Dragon Capital Grp

Pair Trading with NYSE Composite and Dragon Capital

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

The idea behind NYSE Composite and Dragon Capital Grp 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.