Correlation Between NYSE Composite and Goldman Sachs

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

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

Diversification Opportunities for NYSE Composite and Goldman Sachs

-0.03

Correlation Coefficient

NYSE Composite  Goldman Sachs

Good diversification

The 3 months correlation between NYSE and Goldman is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Goldman Sachs Local in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs Local 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 Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs Local has no effect on the direction of NYSE Composite i.e., NYSE Composite and Goldman Sachs go up and down completely randomly.

Pair Corralation between NYSE Composite and Goldman Sachs

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the Goldman Sachs. In addition to that, NYSE Composite is 3.26 times more volatile than Goldman Sachs Local. It trades about -0.04 of its total potential returns per unit of risk. Goldman Sachs Local is currently generating about -0.08 per unit of volatility. If you would invest  402.00  in Goldman Sachs Local on September 23, 2024 and sell it today you would lose (4.00) from holding Goldman Sachs Local or give up 1.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

NYSE Composite  vs.  Goldman Sachs Local

Pair Trading with NYSE Composite and Goldman Sachs

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

The idea behind NYSE Composite and Goldman Sachs Local 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.