Correlation Between NYSE Composite and Homestead Intermediate

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

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

Diversification Opportunities for NYSE Composite and Homestead Intermediate

-0.46

Correlation Coefficient

NYSE Composite  Homestead Intermediate

Very good diversification

The 3 months correlation between NYSE and Homestead is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Homestead Intermediate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Homestead Intermediate 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 Homestead Intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Homestead Intermediate has no effect on the direction of NYSE Composite i.e., NYSE Composite and Homestead Intermediate go up and down completely randomly.

Pair Corralation between NYSE Composite and Homestead Intermediate

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.75 times more return on investment than Homestead Intermediate. However, NYSE Composite is 1.75 times more volatile than Homestead Intermediate Bond. It trades about 0.07 of its potential returns per unit of risk. Homestead Intermediate Bond is currently generating about -0.16 per unit of risk. If you would invest  1,925,638  in NYSE Composite on September 15, 2024 and sell it today you would earn a total of  47,299  from holding NYSE Composite or generate 2.46% return on investment over 90 days.

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

NYSE Composite  vs.  Homestead Intermediate Bond

Pair Trading with NYSE Composite and Homestead Intermediate

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

The idea behind NYSE Composite and Homestead Intermediate Bond 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.