Correlation Between NYSE Composite and Daimler Truck

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

Diversification Opportunities for NYSE Composite and Daimler Truck

0.93
  Correlation Coefficient

Almost no diversification

The 3 months correlation between NYSE and Daimler is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Daimler Truck Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daimler Truck Holding 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 Daimler Truck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daimler Truck Holding has no effect on the direction of NYSE Composite i.e., NYSE Composite and Daimler Truck go up and down completely randomly.
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Pair Corralation between NYSE Composite and Daimler Truck

Assuming the 90 days trading horizon NYSE Composite is expected to generate 5.5 times less return on investment than Daimler Truck. But when comparing it to its historical volatility, NYSE Composite is 7.63 times less risky than Daimler Truck. It trades about 0.39 of its potential returns per unit of risk. Daimler Truck Holding is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  4,005  in Daimler Truck Holding on December 30, 2023 and sell it today you would earn a total of  954.00  from holding Daimler Truck Holding or generate 23.82% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

NYSE Composite  vs.  Daimler Truck Holding

 Performance 
       Timeline  

NYSE Composite and Daimler Truck Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NYSE Composite and Daimler Truck

The main advantage of trading using opposite NYSE Composite and Daimler Truck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite position performs unexpectedly, Daimler Truck 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 Daimler Truck will offset losses from the drop in Daimler Truck's long position.
The idea behind NYSE Composite and Daimler Truck Holding 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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