Correlation Between NYSE Composite and Banking Fund

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

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

Diversification Opportunities for NYSE Composite and Banking Fund

0.76

Correlation Coefficient

NYSE Composite  Banking Fund

Poor diversification

The 3 months correlation between NYSE and Banking is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Banking Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banking Fund Class 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 Banking Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banking Fund Class has no effect on the direction of NYSE Composite i.e., NYSE Composite and Banking Fund go up and down completely randomly.

Pair Corralation between NYSE Composite and Banking Fund

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the Banking Fund. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 2.83 times less risky than Banking Fund. The index trades about -0.03 of its potential returns per unit of risk. The Banking Fund Class is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  8,188  in Banking Fund Class on October 1, 2024 and sell it today you would earn a total of  492.00  from holding Banking Fund Class or generate 6.01% return on investment over 90 days.

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

NYSE Composite  vs.  Banking Fund Class

Pair Trading with NYSE Composite and Banking Fund

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

The idea behind NYSE Composite and Banking Fund Class 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.