Correlation Between NYSE Composite and Rational/pier

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

By analyzing existing cross correlation between NYSE Composite and Rationalpier 88 Convertible, you can compare the effects of market volatilities on NYSE Composite and Rational/pier 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 Rational/pier. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and Rational/pier.

Diversification Opportunities for NYSE Composite and Rational/pier

0.97

Correlation Coefficient

NYSE Composite  Rational/pier

Almost no diversification

The 3 months correlation between NYSE and Rational/pier is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Rationalpier 88 Convertible in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rationalpier 88 Conv 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 Rational/pier. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rationalpier 88 Conv has no effect on the direction of NYSE Composite i.e., NYSE Composite and Rational/pier go up and down completely randomly.

Pair Corralation between NYSE Composite and Rational/pier

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.73 times more return on investment than Rational/pier. However, NYSE Composite is 1.73 times more volatile than Rationalpier 88 Convertible. It trades about 0.15 of its potential returns per unit of risk. Rationalpier 88 Convertible is currently generating about 0.2 per unit of risk. If you would invest  1,793,449  in NYSE Composite on September 2, 2024 and sell it today you would earn a total of  233,755  from holding NYSE Composite or generate 13.03% return on investment over 90 days.

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

NYSE Composite  vs.  Rationalpier 88 Convertible

Pair Trading with NYSE Composite and Rational/pier

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

The idea behind NYSE Composite and Rationalpier 88 Convertible 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.