Correlation Between NYSE Composite and Boston Scientific

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

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

Diversification Opportunities for NYSE Composite and Boston Scientific

0.86

Correlation Coefficient

NYSE Composite  Boston Scientific

Very poor diversification

The 3 months correlation between NYSE and Boston is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Boston Scientific Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boston Scientific Corp 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 Boston Scientific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boston Scientific Corp has no effect on the direction of NYSE Composite i.e., NYSE Composite and Boston Scientific go up and down completely randomly.

Pair Corralation between NYSE Composite and Boston Scientific

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.88 times less return on investment than Boston Scientific. But when comparing it to its historical volatility, NYSE Composite is 1.86 times less risky than Boston Scientific. It trades about 0.27 of its potential returns per unit of risk. Boston Scientific Corp is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  8,456  in Boston Scientific Corp on August 30, 2024 and sell it today you would earn a total of  619.00  from holding Boston Scientific Corp or generate 7.32% return on investment over 90 days.

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

NYSE Composite  vs.  Boston Scientific Corp

Pair Trading with NYSE Composite and Boston Scientific

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

The idea behind NYSE Composite and Boston Scientific Corp 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.