Correlation Between NYSE Composite and HOSPITALITY

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

Diversification Opportunities for NYSE Composite and HOSPITALITY

-0.23
  Correlation Coefficient

Very good diversification

The 3 months correlation between NYSE and HOSPITALITY is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and HOSPITALITY PPTYS TR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HOSPITALITY PPTYS 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 HOSPITALITY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HOSPITALITY PPTYS has no effect on the direction of NYSE Composite i.e., NYSE Composite and HOSPITALITY go up and down completely randomly.
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Pair Corralation between NYSE Composite and HOSPITALITY

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.17 times more return on investment than HOSPITALITY. However, NYSE Composite is 5.79 times less risky than HOSPITALITY. It trades about 0.41 of its potential returns per unit of risk. HOSPITALITY PPTYS TR is currently generating about -0.17 per unit of risk. If you would invest  1,925,354  in NYSE Composite on September 2, 2024 and sell it today you would earn a total of  101,850  from holding NYSE Composite or generate 5.29% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy90.48%
ValuesDaily Returns

NYSE Composite  vs.  HOSPITALITY PPTYS TR

 Performance 
       Timeline  

NYSE Composite and HOSPITALITY Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NYSE Composite and HOSPITALITY

The main advantage of trading using opposite NYSE Composite and HOSPITALITY positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite position performs unexpectedly, HOSPITALITY 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 HOSPITALITY will offset losses from the drop in HOSPITALITY's long position.
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The idea behind NYSE Composite and HOSPITALITY PPTYS TR 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.

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