Correlation Between NYSE Composite and Chainlink

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

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

Diversification Opportunities for NYSE Composite and Chainlink

0.74

Correlation Coefficient

NYSE Composite  Chainlink

Poor diversification

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

Pair Corralation between NYSE Composite and Chainlink

Assuming the 90 days trading horizon NYSE Composite is expected to generate 12.2 times less return on investment than Chainlink. But when comparing it to its historical volatility, NYSE Composite is 7.49 times less risky than Chainlink. It trades about 0.12 of its potential returns per unit of risk. Chainlink is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,101  in Chainlink on August 30, 2024 and sell it today you would earn a total of  752.00  from holding Chainlink or generate 68.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

NYSE Composite  vs.  Chainlink

Pair Trading with NYSE Composite and Chainlink

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

The idea behind NYSE Composite and Chainlink 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.