Correlation Between NYSE Composite and 06051GLE7

Can any of the company-specific risk be diversified away by investing in both NYSE Composite and 06051GLE7 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 06051GLE7 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NYSE Composite and BAC 508 20 JAN 27, you can compare the effects of market volatilities on NYSE Composite and 06051GLE7 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 06051GLE7. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and 06051GLE7.

Diversification Opportunities for NYSE Composite and 06051GLE7

-0.42

Correlation Coefficient

NYSE Composite  06051GLE7

Very good diversification

The 3 months correlation between NYSE and 06051GLE7 is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and BAC 508 20 JAN 27 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BAC 508 20 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 06051GLE7. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BAC 508 20 has no effect on the direction of NYSE Composite i.e., NYSE Composite and 06051GLE7 go up and down completely randomly.

Pair Corralation between NYSE Composite and 06051GLE7

Assuming the 90 days trading horizon NYSE Composite is expected to generate 2.56 times more return on investment than 06051GLE7. However, NYSE Composite is 2.56 times more volatile than BAC 508 20 JAN 27. It trades about 0.12 of its potential returns per unit of risk. BAC 508 20 JAN 27 is currently generating about -0.1 per unit of risk. If you would invest  1,912,150  in NYSE Composite on September 13, 2024 and sell it today you would earn a total of  76,953  from holding NYSE Composite or generate 4.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

NYSE Composite  vs.  BAC 508 20 JAN 27

Pair Trading with NYSE Composite and 06051GLE7

The main advantage of trading using opposite NYSE Composite and 06051GLE7 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite position performs unexpectedly, 06051GLE7 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 06051GLE7 will offset losses from the drop in 06051GLE7's long position.

The idea behind NYSE Composite and BAC 508 20 JAN 27 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.