Correlation Between NYSE Composite and ResMed

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

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

Diversification Opportunities for NYSE Composite and ResMed

0.54

Correlation Coefficient

NYSE Composite  ResMed

Very weak diversification

The 3 months correlation between NYSE and ResMed is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and ResMed Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ResMed Inc 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 ResMed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ResMed Inc has no effect on the direction of NYSE Composite i.e., NYSE Composite and ResMed go up and down completely randomly.

Pair Corralation between NYSE Composite and ResMed

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.32 times more return on investment than ResMed. However, NYSE Composite is 3.15 times less risky than ResMed. It trades about -0.1 of its potential returns per unit of risk. ResMed Inc is currently generating about -0.09 per unit of risk. If you would invest  1,807,715  in NYSE Composite on January 24, 2024 and sell it today you would lose (28,439) from holding NYSE Composite or give up 1.57% of portfolio value over 90 days.

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

NYSE Composite  vs.  ResMed Inc

Pair Trading with NYSE Composite and ResMed

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

The idea behind NYSE Composite and ResMed Inc 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.