Correlation Between NYSE Composite and JP Morgan

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Can any of the company-specific risk be diversified away by investing in both NYSE Composite and JP Morgan 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 JP Morgan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NYSE Composite and JP Morgan Exchange Traded, you can compare the effects of market volatilities on NYSE Composite and JP Morgan 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 JP Morgan. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and JP Morgan.

Diversification Opportunities for NYSE Composite and JP Morgan

0.96
  Correlation Coefficient

Almost no diversification

The 3 months correlation between NYSE and JCTR is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and JP Morgan Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JP Morgan Exchange 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 JP Morgan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JP Morgan Exchange has no effect on the direction of NYSE Composite i.e., NYSE Composite and JP Morgan go up and down completely randomly.
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Pair Corralation between NYSE Composite and JP Morgan

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.66 times less return on investment than JP Morgan. But when comparing it to its historical volatility, NYSE Composite is 1.14 times less risky than JP Morgan. It trades about 0.08 of its potential returns per unit of risk. JP Morgan Exchange Traded is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  5,100  in JP Morgan Exchange Traded on September 5, 2024 and sell it today you would earn a total of  3,129  from holding JP Morgan Exchange Traded or generate 61.35% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

NYSE Composite  vs.  JP Morgan Exchange Traded

 Performance 
       Timeline  

NYSE Composite and JP Morgan Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NYSE Composite and JP Morgan

The main advantage of trading using opposite NYSE Composite and JP Morgan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite position performs unexpectedly, JP Morgan 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 JP Morgan will offset losses from the drop in JP Morgan's long position.
The idea behind NYSE Composite and JP Morgan Exchange Traded 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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