Correlation Between NYSE Composite and BCD
Can any of the company-specific risk be diversified away by investing in both NYSE Composite and BCD 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 BCD into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NYSE Composite and BCD, you can compare the effects of market volatilities on NYSE Composite and BCD 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 BCD. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and BCD.
Diversification Opportunities for NYSE Composite and BCD
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between NYSE and BCD is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and BCD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BCD 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 BCD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BCD has no effect on the direction of NYSE Composite i.e., NYSE Composite and BCD go up and down completely randomly.
Pair Corralation between NYSE Composite and BCD
Assuming the 90 days trading horizon NYSE Composite is expected to generate 2.74 times less return on investment than BCD. But when comparing it to its historical volatility, NYSE Composite is 11.23 times less risky than BCD. It trades about 0.08 of its potential returns per unit of risk. BCD is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 13.00 in BCD on August 27, 2024 and sell it today you would lose (4.89) from holding BCD or give up 37.62% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 60.28% |
| Values | Daily Returns |
NYSE Composite vs. BCD
Performance |
| Timeline |
NYSE Composite and BCD Volatility Contrast
Predicted Return Density |
| Returns |
NYSE Composite
Pair trading matchups for NYSE Composite
BCD
Pair trading matchups for BCD
Pair Trading with NYSE Composite and BCD
The main advantage of trading using opposite NYSE Composite and BCD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite position performs unexpectedly, BCD 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 BCD will offset losses from the drop in BCD's long position.| NYSE Composite vs. Hooker Furniture | NYSE Composite vs. Hudson Pacific Properties | NYSE Composite vs. Canlan Ice Sports | NYSE Composite vs. Boston Properties |
Check out your portfolio center.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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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