Correlation Between NYSE Composite and JSE

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

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

Diversification Opportunities for NYSE Composite and JSE

0.27

Correlation Coefficient

NYSE Composite  JSE

Modest diversification

The 3 months correlation between NYSE and JSE is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and JSE Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JSE Limited 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 JSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JSE Limited has no effect on the direction of NYSE Composite i.e., NYSE Composite and JSE go up and down completely randomly.

Pair Corralation between NYSE Composite and JSE

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the JSE. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 4.55 times less risky than JSE. The index trades about 0.0 of its potential returns per unit of risk. The JSE Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  550.00  in JSE Limited on September 25, 2024 and sell it today you would earn a total of  115.00  from holding JSE Limited or generate 20.91% return on investment over 90 days.

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

NYSE Composite  vs.  JSE Limited

Pair Trading with NYSE Composite and JSE

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

The idea behind NYSE Composite and JSE Limited 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.