Correlation Between NYSE Composite and SPDR DoubleLine

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

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

Diversification Opportunities for NYSE Composite and SPDR DoubleLine

0.8

Correlation Coefficient

NYSE Composite  SPDR DoubleLine

Very poor diversification

The 3 months correlation between NYSE and SPDR is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and SPDR DoubleLine Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR DoubleLine Short 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 SPDR DoubleLine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR DoubleLine Short has no effect on the direction of NYSE Composite i.e., NYSE Composite and SPDR DoubleLine go up and down completely randomly.

Pair Corralation between NYSE Composite and SPDR DoubleLine

Assuming the 90 days trading horizon NYSE Composite is expected to generate 7.05 times more return on investment than SPDR DoubleLine. However, NYSE Composite is 7.05 times more volatile than SPDR DoubleLine Short. It trades about 0.11 of its potential returns per unit of risk. SPDR DoubleLine Short is currently generating about 0.1 per unit of risk. If you would invest  1,704,060  in NYSE Composite on January 29, 2024 and sell it today you would earn a total of  72,267  from holding NYSE Composite or generate 4.24% return on investment over 90 days.

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

NYSE Composite  vs.  SPDR DoubleLine Short

Pair Trading with NYSE Composite and SPDR DoubleLine

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

The idea behind NYSE Composite and SPDR DoubleLine Short 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..