Correlation Between NYSE Composite and INTERNATIONAL

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Can any of the company-specific risk be diversified away by investing in both NYSE Composite and INTERNATIONAL 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 INTERNATIONAL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NYSE Composite and INTERNATIONAL PAPER 5, you can compare the effects of market volatilities on NYSE Composite and INTERNATIONAL 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 INTERNATIONAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and INTERNATIONAL.

Diversification Opportunities for NYSE Composite and INTERNATIONAL

0.07
  Correlation Coefficient

Significant diversification

The 3 months correlation between NYSE and INTERNATIONAL is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and INTERNATIONAL PAPER 5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INTERNATIONAL PAPER 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 INTERNATIONAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INTERNATIONAL PAPER has no effect on the direction of NYSE Composite i.e., NYSE Composite and INTERNATIONAL go up and down completely randomly.
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Pair Corralation between NYSE Composite and INTERNATIONAL

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.49 times more return on investment than INTERNATIONAL. However, NYSE Composite is 2.04 times less risky than INTERNATIONAL. It trades about 0.11 of its potential returns per unit of risk. INTERNATIONAL PAPER 5 is currently generating about 0.02 per unit of risk. If you would invest  1,550,264  in NYSE Composite on August 31, 2024 and sell it today you would earn a total of  476,940  from holding NYSE Composite or generate 30.77% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy65.51%
ValuesDaily Returns

NYSE Composite  vs.  INTERNATIONAL PAPER 5

 Performance 
       Timeline  

NYSE Composite and INTERNATIONAL Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NYSE Composite and INTERNATIONAL

The main advantage of trading using opposite NYSE Composite and INTERNATIONAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite position performs unexpectedly, INTERNATIONAL 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 INTERNATIONAL will offset losses from the drop in INTERNATIONAL's long position.
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The idea behind NYSE Composite and INTERNATIONAL PAPER 5 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.

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