Correlation Between NYSE Composite and Guggenheim Managed

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

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

Diversification Opportunities for NYSE Composite and Guggenheim Managed

0.26

Correlation Coefficient

NYSE Composite  Guggenheim Managed

Modest diversification

The 3 months correlation between NYSE and Guggenheim is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Guggenheim Managed Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guggenheim Managed 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 Guggenheim Managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guggenheim Managed has no effect on the direction of NYSE Composite i.e., NYSE Composite and Guggenheim Managed go up and down completely randomly.

Pair Corralation between NYSE Composite and Guggenheim Managed

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.8 times more return on investment than Guggenheim Managed. However, NYSE Composite is 1.24 times less risky than Guggenheim Managed. It trades about -0.04 of its potential returns per unit of risk. Guggenheim Managed Futures is currently generating about -0.07 per unit of risk. If you would invest  1,944,543  in NYSE Composite on September 22, 2024 and sell it today you would lose (32,599) from holding NYSE Composite or give up 1.68% of portfolio value over 90 days.

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

NYSE Composite  vs.  Guggenheim Managed Futures

Pair Trading with NYSE Composite and Guggenheim Managed

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

The idea behind NYSE Composite and Guggenheim Managed Futures 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.