Correlation Between NYSE Composite and Kinetics Market

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

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

Diversification Opportunities for NYSE Composite and Kinetics Market

0.74

Correlation Coefficient

NYSE Composite  Kinetics Market

Poor diversification

The 3 months correlation between NYSE and Kinetics is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Kinetics Market Opportunities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kinetics Market Oppo 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 Kinetics Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kinetics Market Oppo has no effect on the direction of NYSE Composite i.e., NYSE Composite and Kinetics Market go up and down completely randomly.

Pair Corralation between NYSE Composite and Kinetics Market

Assuming the 90 days trading horizon NYSE Composite is expected to generate 12.57 times less return on investment than Kinetics Market. But when comparing it to its historical volatility, NYSE Composite is 4.28 times less risky than Kinetics Market. It trades about 0.08 of its potential returns per unit of risk. Kinetics Market Opportunities is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  5,956  in Kinetics Market Opportunities on September 17, 2024 and sell it today you would earn a total of  2,278  from holding Kinetics Market Opportunities or generate 38.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

NYSE Composite  vs.  Kinetics Market Opportunities

Pair Trading with NYSE Composite and Kinetics Market

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

The idea behind NYSE Composite and Kinetics Market Opportunities 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.