Correlation Between NYSE Composite and Pzena International

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

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

Diversification Opportunities for NYSE Composite and Pzena International

-0.41

Correlation Coefficient

NYSE Composite  Pzena International

Very good diversification

The 3 months correlation between NYSE and Pzena is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Pzena International Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pzena International Small 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 Pzena International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pzena International Small has no effect on the direction of NYSE Composite i.e., NYSE Composite and Pzena International go up and down completely randomly.

Pair Corralation between NYSE Composite and Pzena International

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.65 times more return on investment than Pzena International. However, NYSE Composite is 1.53 times less risky than Pzena International. It trades about 0.07 of its potential returns per unit of risk. Pzena International Small is currently generating about 0.0 per unit of risk. If you would invest  1,925,638  in NYSE Composite on September 15, 2024 and sell it today you would earn a total of  47,299  from holding NYSE Composite or generate 2.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

NYSE Composite  vs.  Pzena International Small

Pair Trading with NYSE Composite and Pzena International

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

The idea behind NYSE Composite and Pzena International Small 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.