Correlation Between NYSE Composite and FactorShares

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

By analyzing existing cross correlation between NYSE Composite and FactorShares 2X SP500, you can compare the effects of market volatilities on NYSE Composite and FactorShares 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 FactorShares. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and FactorShares.

Diversification Opportunities for NYSE Composite and FactorShares

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Correlation Coefficient

NYSE Composite  FactorShares

Pay attention - limited upside

The 3 months correlation between NYSE and FactorShares is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and FactorShares 2X SP500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FactorShares 2X SP500 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 FactorShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FactorShares 2X SP500 has no effect on the direction of NYSE Composite i.e., NYSE Composite and FactorShares go up and down completely randomly.

Pair Corralation between NYSE Composite and FactorShares

If you would invest  1,551,444  in NYSE Composite on September 29, 2024 and sell it today you would earn a total of  372,404  from holding NYSE Composite or generate 24.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

NYSE Composite  vs.  FactorShares 2X SP500

Pair Trading with NYSE Composite and FactorShares

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

The idea behind NYSE Composite and FactorShares 2X SP500 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.

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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.