Correlation Between NYSE Composite and SDX Energy

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

Diversification Opportunities for NYSE Composite and SDX Energy

NYSESDXDiversified AwayNYSESDXDiversified Away100%
0.41
  Correlation Coefficient

Very weak diversification

The 3 months correlation between NYSE and SDX is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and SDX Energy plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SDX Energy plc 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 SDX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SDX Energy plc has no effect on the direction of NYSE Composite i.e., NYSE Composite and SDX Energy go up and down completely randomly.
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Pair Corralation between NYSE Composite and SDX Energy

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the SDX Energy. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 210.16 times less risky than SDX Energy. The index trades about -0.04 of its potential returns per unit of risk. The SDX Energy plc is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  0.18  in SDX Energy plc on November 25, 2024 and sell it today you would earn a total of  1.24  from holding SDX Energy plc or generate 688.89% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.45%
ValuesDaily Returns

NYSE Composite  vs.  SDX Energy plc

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -80-60-40-200
JavaScript chart by amCharts 3.21.15NYA SDXEF
       Timeline  

NYSE Composite and SDX Energy Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-2.15-1.61-1.07-0.530.00.521.061.62.142.68 0.20.40.60.8
JavaScript chart by amCharts 3.21.15NYA SDXEF
       Returns  

Pair Trading with NYSE Composite and SDX Energy

The main advantage of trading using opposite NYSE Composite and SDX Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite position performs unexpectedly, SDX Energy 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 SDX Energy will offset losses from the drop in SDX Energy's long position.
The idea behind NYSE Composite and SDX Energy plc 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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