Correlation Between NYSE Composite and EMC2
Can any of the company-specific risk be diversified away by investing in both NYSE Composite and EMC2 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 EMC2 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NYSE Composite and EMC2, you can compare the effects of market volatilities on NYSE Composite and EMC2 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 EMC2. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and EMC2.
Diversification Opportunities for NYSE Composite and EMC2
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between NYSE and EMC2 is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and EMC2 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMC2 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 EMC2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMC2 has no effect on the direction of NYSE Composite i.e., NYSE Composite and EMC2 go up and down completely randomly.
Pair Corralation between NYSE Composite and EMC2
Assuming the 90 days trading horizon NYSE Composite is expected to generate 6.4 times less return on investment than EMC2. But when comparing it to its historical volatility, NYSE Composite is 6.88 times less risky than EMC2. It trades about 0.41 of its potential returns per unit of risk. EMC2 is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest 0.03 in EMC2 on September 2, 2024 and sell it today you would earn a total of 0.01 from holding EMC2 or generate 38.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
NYSE Composite vs. EMC2
Performance |
| Timeline |
NYSE Composite and EMC2 Volatility Contrast
Predicted Return Density |
| Returns |
NYSE Composite
Pair trading matchups for NYSE Composite
EMC2
Pair trading matchups for EMC2
Pair Trading with NYSE Composite and EMC2
The main advantage of trading using opposite NYSE Composite and EMC2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite position performs unexpectedly, EMC2 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 EMC2 will offset losses from the drop in EMC2's long position.| NYSE Composite vs. Simon Property Group | NYSE Composite vs. Merit Medical Systems | NYSE Composite vs. Catalent | NYSE Composite vs. Titan Machinery |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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