Correlation Between NYSE Composite and MicroSectors FANG
Can any of the company-specific risk be diversified away by investing in both NYSE Composite and MicroSectors FANG 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 MicroSectors FANG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NYSE Composite and MicroSectors FANG Index, you can compare the effects of market volatilities on NYSE Composite and MicroSectors FANG 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 MicroSectors FANG. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and MicroSectors FANG.
Diversification Opportunities for NYSE Composite and MicroSectors FANG
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between NYSE and MicroSectors is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and MicroSectors FANG Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectors FANG Index 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 MicroSectors FANG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectors FANG Index has no effect on the direction of NYSE Composite i.e., NYSE Composite and MicroSectors FANG go up and down completely randomly.
Pair Corralation between NYSE Composite and MicroSectors FANG
Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the MicroSectors FANG. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 4.17 times less risky than MicroSectors FANG. The index trades about -0.03 of its potential returns per unit of risk. The MicroSectors FANG Index is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 7,111 in MicroSectors FANG Index on September 30, 2024 and sell it today you would earn a total of 2,650 from holding MicroSectors FANG Index or generate 37.27% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
NYSE Composite vs. MicroSectors FANG Index
Performance |
Timeline |
NYSE Composite and MicroSectors FANG Volatility Contrast
Predicted Return Density |
Returns |
NYSE Composite
Pair trading matchups for NYSE Composite
MicroSectors FANG Index
Pair trading matchups for MicroSectors FANG
Pair Trading with NYSE Composite and MicroSectors FANG
The main advantage of trading using opposite NYSE Composite and MicroSectors FANG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite position performs unexpectedly, MicroSectors FANG 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 MicroSectors FANG will offset losses from the drop in MicroSectors FANG's long position.NYSE Composite vs. ATRenew Inc DRC | ||
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Check out your portfolio center.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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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