Correlation Between NYSE Composite and TriMas

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

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

Diversification Opportunities for NYSE Composite and TriMas

0.49

Correlation Coefficient

NYSE Composite  TriMas

Very weak diversification

The 3 months correlation between NYSE and TriMas is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and TriMas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TriMas 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 TriMas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TriMas has no effect on the direction of NYSE Composite i.e., NYSE Composite and TriMas go up and down completely randomly.

Pair Corralation between NYSE Composite and TriMas

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.45 times more return on investment than TriMas. However, NYSE Composite is 2.22 times less risky than TriMas. It trades about 0.06 of its potential returns per unit of risk. TriMas is currently generating about -0.01 per unit of risk. If you would invest  1,553,974  in NYSE Composite on September 27, 2024 and sell it today you would earn a total of  380,174  from holding NYSE Composite or generate 24.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

NYSE Composite  vs.  TriMas

Pair Trading with NYSE Composite and TriMas

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

The idea behind NYSE Composite and TriMas 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.