Correlation Between NYSE Composite and Country Garden

Can any of the company-specific risk be diversified away by investing in both NYSE Composite and Country Garden 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 Country Garden into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NYSE Composite and Country Garden Holdings, you can compare the effects of market volatilities on NYSE Composite and Country Garden 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 Country Garden. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and Country Garden.

Diversification Opportunities for NYSE Composite and Country Garden

0.04

Correlation Coefficient

NYSE Composite  Country Garden

Significant diversification

The 3 months correlation between NYSE and Country is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Country Garden Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Country Garden Holdings 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 Country Garden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Country Garden Holdings has no effect on the direction of NYSE Composite i.e., NYSE Composite and Country Garden go up and down completely randomly.

Pair Corralation between NYSE Composite and Country Garden

Assuming the 90 days trading horizon NYSE Composite is expected to generate 2.51 times less return on investment than Country Garden. But when comparing it to its historical volatility, NYSE Composite is 11.96 times less risky than Country Garden. It trades about 0.03 of its potential returns per unit of risk. Country Garden Holdings is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  59.00  in Country Garden Holdings on January 25, 2024 and sell it today you would lose (49.00) from holding Country Garden Holdings or give up 83.05% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.53%
Values	Daily Returns

NYSE Composite  vs.  Country Garden Holdings

Pair Trading with NYSE Composite and Country Garden

The main advantage of trading using opposite NYSE Composite and Country Garden positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite position performs unexpectedly, Country Garden 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 Country Garden will offset losses from the drop in Country Garden's long position.

The idea behind NYSE Composite and Country Garden Holdings 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.