Correlation Between NYSE Composite and Rational Risk

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Can any of the company-specific risk be diversified away by investing in both NYSE Composite and Rational Risk 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 Risk into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NYSE Composite and Rational Risk Managed, you can compare the effects of market volatilities on NYSE Composite and Rational Risk 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 Risk. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and Rational Risk.

Diversification Opportunities for NYSE Composite and Rational Risk

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  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between NYSE and Rational is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Rational Risk Managed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rational Risk Managed 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 Risk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rational Risk Managed has no effect on the direction of NYSE Composite i.e., NYSE Composite and Rational Risk go up and down completely randomly.
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Pair Corralation between NYSE Composite and Rational Risk

If you would invest  1,665,676  in NYSE Composite on September 12, 2024 and sell it today you would earn a total of  322,514  from holding NYSE Composite or generate 19.36% return on investment over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy0.0%
ValuesDaily Returns

NYSE Composite  vs.  Rational Risk Managed

 Performance 
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NYSE Composite and Rational Risk Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NYSE Composite and Rational Risk

The main advantage of trading using opposite NYSE Composite and Rational Risk positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite position performs unexpectedly, Rational Risk 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 Risk will offset losses from the drop in Rational Risk's long position.
The idea behind NYSE Composite and Rational Risk Managed 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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