Correlation Between NYSE Composite and IAC

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

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

Diversification Opportunities for NYSE Composite and IAC

0.06

Correlation Coefficient

NYSE Composite  IAC

Significant diversification

The 3 months correlation between NYSE and IAC is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and IAC Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IAC 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 IAC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IAC Inc has no effect on the direction of NYSE Composite i.e., NYSE Composite and IAC go up and down completely randomly.

Pair Corralation between NYSE Composite and IAC

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.46 times more return on investment than IAC. However, NYSE Composite is 2.19 times less risky than IAC. It trades about -0.22 of its potential returns per unit of risk. IAC Inc is currently generating about -0.34 per unit of risk. If you would invest  1,821,619  in NYSE Composite on February 1, 2024 and sell it today you would lose (61,285) from holding NYSE Composite or give up 3.36% of portfolio value over 90 days.

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

NYSE Composite  vs.  IAC Inc

Pair Trading with NYSE Composite and IAC

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

The idea behind NYSE Composite and IAC 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.