Correlation Between NYSE Composite and Communication Services
Can any of the company-specific risk be diversified away by investing in both NYSE Composite and Communication Services 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 Communication Services into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NYSE Composite and Communication Services Select, you can compare the effects of market volatilities on NYSE Composite and Communication Services 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 Communication Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and Communication Services.
Diversification Opportunities for NYSE Composite and Communication Services
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between NYSE and Communication is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Communication Services Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Communication Services 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 Communication Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Communication Services has no effect on the direction of NYSE Composite i.e., NYSE Composite and Communication Services go up and down completely randomly.
Pair Corralation between NYSE Composite and Communication Services
Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.73 times less return on investment than Communication Services. But when comparing it to its historical volatility, NYSE Composite is 1.44 times less risky than Communication Services. It trades about 0.1 of its potential returns per unit of risk. Communication Services Select is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 6,652 in Communication Services Select on August 26, 2024 and sell it today you would earn a total of 3,036 from holding Communication Services Select or generate 45.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
NYSE Composite vs. Communication Services Select
Performance |
| Timeline |
NYSE Composite and Communication Services Volatility Contrast
Predicted Return Density |
| Returns |
NYSE Composite
Pair trading matchups for NYSE Composite
Communication Services Select
Pair trading matchups for Communication Services
Pair Trading with NYSE Composite and Communication Services
The main advantage of trading using opposite NYSE Composite and Communication Services positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite position performs unexpectedly, Communication Services 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 Communication Services will offset losses from the drop in Communication Services' long position.| NYSE Composite vs. Glacier Bancorp | NYSE Composite vs. LithiumBank Resources Corp | NYSE Composite vs. Stepstone Group | NYSE Composite vs. Pintec Technology Holdings |
| Communication Services vs. The Real Estate | Communication Services vs. Consumer Discretionary Select | Communication Services vs. Materials Select Sector | Communication Services vs. Industrial Select Sector |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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