Correlation Between NYSE Composite and Kensington Active

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

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

Diversification Opportunities for NYSE Composite and Kensington Active

0.56

Correlation Coefficient

NYSE Composite  Kensington Active

Very weak diversification

The 3 months correlation between NYSE and Kensington is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Kensington Active Advantage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kensington Active 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 Kensington Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kensington Active has no effect on the direction of NYSE Composite i.e., NYSE Composite and Kensington Active go up and down completely randomly.

Pair Corralation between NYSE Composite and Kensington Active

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.8 times more return on investment than Kensington Active. However, NYSE Composite is 1.8 times more volatile than Kensington Active Advantage. It trades about 0.07 of its potential returns per unit of risk. Kensington Active Advantage is currently generating about 0.07 per unit of risk. If you would invest  1,535,030  in NYSE Composite on September 25, 2024 and sell it today you would earn a total of  385,681  from holding NYSE Composite or generate 25.13% return on investment over 90 days.

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

NYSE Composite  vs.  Kensington Active Advantage

Pair Trading with NYSE Composite and Kensington Active

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

The idea behind NYSE Composite and Kensington Active Advantage 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.