Two Equities Correlation Analysis

Specify exactly 2 symbols:
Can any of the company-specific risk be diversified away by investing in both Satcom Systems and NYSE Composite 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 Satcom Systems and NYSE Composite into the same portfolio, which is an essential part of the fundamental portfolio management process.
This model provides you with a quick lookup of cross correlation between two equities. Please specify two instruments to run the correlation.

Diversification Opportunities for Satcom Systems and NYSE Composite

0.52
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Satcom and NYSE is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Satcom Systems and NYSE Composite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NYSE Composite and Satcom Systems 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 Satcom Systems are associated (or correlated) with NYSE Composite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NYSE Composite has no effect on the direction of Satcom Systems i.e., Satcom Systems and NYSE Composite go up and down completely randomly.
    Optimize

Pair Corralation between Satcom Systems and NYSE Composite

Assuming the 90 days trading horizon Satcom Systems is expected to generate 16.19 times more return on investment than NYSE Composite. However, Satcom Systems is 16.19 times more volatile than NYSE Composite. It trades about 0.27 of its potential returns per unit of risk. NYSE Composite is currently generating about 0.36 per unit of risk. If you would invest  4,300  in Satcom Systems on December 29, 2023 and sell it today you would earn a total of  1,650  from holding Satcom Systems or generate 38.37% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy78.26%
ValuesDaily Returns

Satcom Systems  vs.  NYSE Composite

 Performance 
       Timeline  

Satcom Systems and NYSE Composite Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Satcom Systems and NYSE Composite

The main advantage of trading using opposite Satcom Systems and NYSE Composite positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Satcom Systems position performs unexpectedly, NYSE Composite 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 NYSE Composite will offset losses from the drop in NYSE Composite's long position.
The idea behind Satcom Systems and NYSE Composite 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.
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 Global Correlations module to find global opportunities by holding instruments from different markets.

Other Complementary Tools

Idea Breakdown
Analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes
Portfolio Suggestion
Get suggestions outside of your existing asset allocation including your own model portfolios
Portfolio File Import
Quickly import all of your third-party portfolios from your local drive in csv format
Stocks Directory
Find actively traded stocks across global markets
Equity Search
Search for actively traded equities including funds and ETFs from over 30 global markets