Correlation Between NYSE Composite and CARRIER

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

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

Diversification Opportunities for NYSE Composite and CARRIER

0.24

Correlation Coefficient

NYSE Composite  CARRIER

Modest diversification

The 3 months correlation between NYSE and CARRIER is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and CARRIER GLOBAL P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CARRIER GLOBAL P 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 CARRIER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CARRIER GLOBAL P has no effect on the direction of NYSE Composite i.e., NYSE Composite and CARRIER go up and down completely randomly.

Pair Corralation between NYSE Composite and CARRIER

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.99 times more return on investment than CARRIER. However, NYSE Composite is 1.01 times less risky than CARRIER. It trades about -0.04 of its potential returns per unit of risk. CARRIER GLOBAL P is currently generating about -0.2 per unit of risk. If you would invest  1,944,543  in NYSE Composite on September 23, 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	96.92%
Values	Daily Returns

NYSE Composite  vs.  CARRIER GLOBAL P

Pair Trading with NYSE Composite and CARRIER

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

The idea behind NYSE Composite and CARRIER GLOBAL P 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.