Correlation Between NYSE Composite and Tods SpA

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

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

Diversification Opportunities for NYSE Composite and Tods SpA

0.56

Correlation Coefficient

NYSE Composite  Tods SpA

Very weak diversification

The 3 months correlation between NYSE and Tods is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Tods SpA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tods SpA ADR 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 Tods SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tods SpA ADR has no effect on the direction of NYSE Composite i.e., NYSE Composite and Tods SpA go up and down completely randomly.

Pair Corralation between NYSE Composite and Tods SpA

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.09 times more return on investment than Tods SpA. However, NYSE Composite is 1.09 times more volatile than Tods SpA ADR. It trades about -0.01 of its potential returns per unit of risk. Tods SpA ADR is currently generating about -0.01 per unit of risk. If you would invest  1,774,870  in NYSE Composite on February 3, 2024 and sell it today you would lose (4,965) from holding NYSE Composite or give up 0.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.73%
Values	Daily Returns

NYSE Composite  vs.  Tods SpA ADR

Pair Trading with NYSE Composite and Tods SpA

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

The idea behind NYSE Composite and Tods SpA ADR 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.