Correlation Between BEL Small and Coreshares Index

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

By analyzing existing cross correlation between BEL Small and Coreshares Index Tracker, you can compare the effects of market volatilities on BEL Small and Coreshares Index 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 BEL Small with a short position of Coreshares Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of BEL Small and Coreshares Index.

Diversification Opportunities for BEL Small and Coreshares Index

-0.1

Correlation Coefficient

BEL Small  Coreshares Index

Good diversification

The 3 months correlation between BEL and Coreshares is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding BEL Small and Coreshares Index Tracker in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coreshares Index Tracker and BEL Small 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 BEL Small are associated (or correlated) with Coreshares Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coreshares Index Tracker has no effect on the direction of BEL Small i.e., BEL Small and Coreshares Index go up and down completely randomly.

Pair Corralation between BEL Small and Coreshares Index

Assuming the 90 days trading horizon BEL Small is expected to under-perform the Coreshares Index. But the index apears to be less risky and, when comparing its historical volatility, BEL Small is 1.84 times less risky than Coreshares Index. The index trades about -0.29 of its potential returns per unit of risk. The Coreshares Index Tracker is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  107,500  in Coreshares Index Tracker on September 1, 2024 and sell it today you would earn a total of  500.00  from holding Coreshares Index Tracker or generate 0.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

BEL Small  vs.  Coreshares Index Tracker

Pair Trading with BEL Small and Coreshares Index

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

The idea behind BEL Small and Coreshares Index Tracker 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.

Check out your portfolio center.

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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.