Correlation Between NYSE Composite and Nuveen Small

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

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

Diversification Opportunities for NYSE Composite and Nuveen Small

0.53

Correlation Coefficient

NYSE Composite  Nuveen Small

Very weak diversification

The 3 months correlation between NYSE and Nuveen is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Nuveen Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuveen Small Cap 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 Nuveen Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuveen Small Cap has no effect on the direction of NYSE Composite i.e., NYSE Composite and Nuveen Small go up and down completely randomly.

Pair Corralation between NYSE Composite and Nuveen Small

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.75 times more return on investment than Nuveen Small. However, NYSE Composite is 1.33 times less risky than Nuveen Small. It trades about 0.06 of its potential returns per unit of risk. Nuveen Small Cap is currently generating about 0.0 per unit of risk. If you would invest  1,796,384  in NYSE Composite on March 5, 2024 and sell it today you would earn a total of  11,985  from holding NYSE Composite or generate 0.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

NYSE Composite  vs.  Nuveen Small Cap

Pair Trading with NYSE Composite and Nuveen Small

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

The idea behind NYSE Composite and Nuveen Small Cap 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.