Can any of the company-specific risk be diversified away by investing in both Mainstay Conservative 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 Mainstay Conservative and NYSE Composite into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mainstay Conservative Etf and NYSE Composite, you can compare the effects of market volatilities on Mainstay Conservative and NYSE Composite 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 Mainstay Conservative with a short position of NYSE Composite. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mainstay Conservative and NYSE Composite.
Diversification Opportunities for Mainstay Conservative and NYSE Composite
The 3 months correlation between Mainstay and NYSE is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding MainStay Conservative ETF and NYSE Composite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NYSE Composite and Mainstay Conservative 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 Mainstay Conservative Etf 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 Mainstay Conservative i.e., Mainstay Conservative and NYSE Composite go up and down completely randomly.
Pair Corralation between Mainstay Conservative and NYSE Composite
Assuming the 90 days horizon Mainstay Conservative Etf is expected to under-perform the NYSE Composite. But the mutual fund apears to be less risky and, when comparing its historical volatility, Mainstay Conservative Etf is 1.66 times less risky than NYSE Composite. The mutual fund trades about -0.02 of its potential returns per unit of risk. The NYSE Composite is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 1,678,047 in NYSE Composite on August 31, 2023 and sell it today you would lose (85,132) from holding NYSE Composite or give up 5.07% of portfolio value over 90 days.
Pair Trading with Mainstay Conservative and NYSE Composite
The main advantage of trading using opposite Mainstay Conservative and NYSE Composite positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mainstay Conservative 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 Mainstay Conservative Etf 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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