Correlation Between NYSE Composite and Highland Longshort

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

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

Diversification Opportunities for NYSE Composite and Highland Longshort

0.67

Correlation Coefficient

NYSE Composite  Highland Longshort

Poor diversification

The 3 months correlation between NYSE and Highland is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Highland Longshort Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highland Longshort 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 Highland Longshort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highland Longshort has no effect on the direction of NYSE Composite i.e., NYSE Composite and Highland Longshort go up and down completely randomly.

Pair Corralation between NYSE Composite and Highland Longshort

Assuming the 90 days trading horizon NYSE Composite is expected to generate 3.45 times more return on investment than Highland Longshort. However, NYSE Composite is 3.45 times more volatile than Highland Longshort Healthcare. It trades about 0.12 of its potential returns per unit of risk. Highland Longshort Healthcare is currently generating about 0.29 per unit of risk. If you would invest  1,733,246  in NYSE Composite on February 12, 2024 and sell it today you would earn a total of  82,959  from holding NYSE Composite or generate 4.79% return on investment over 90 days.

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

NYSE Composite  vs.  Highland Longshort Healthcare

Pair Trading with NYSE Composite and Highland Longshort

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

The idea behind NYSE Composite and Highland Longshort Healthcare 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.