Correlation Between Cboe UK and HL Multi

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

By analyzing existing cross correlation between Cboe UK Consumer and HL Multi Index Moderately, you can compare the effects of market volatilities on Cboe UK and HL Multi 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 Cboe UK with a short position of HL Multi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cboe UK and HL Multi.

Diversification Opportunities for Cboe UK and HL Multi

0.88

Correlation Coefficient

Cboe UK  HL Multi

Very poor diversification

The 3 months correlation between Cboe and 0P0001RI3W is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Cboe UK Consumer and HL Multi Index Moderately in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HL Multi Index and Cboe UK 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 Cboe UK Consumer are associated (or correlated) with HL Multi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HL Multi Index has no effect on the direction of Cboe UK i.e., Cboe UK and HL Multi go up and down completely randomly.

Pair Corralation between Cboe UK and HL Multi

Assuming the 90 days trading horizon Cboe UK Consumer is expected to under-perform the HL Multi. In addition to that, Cboe UK is 1.66 times more volatile than HL Multi Index Moderately. It trades about -0.16 of its total potential returns per unit of risk. HL Multi Index Moderately is currently generating about 0.0 per unit of volatility. If you would invest  12,036  in HL Multi Index Moderately on December 28, 2024 and sell it today you would lose (23.00) from holding HL Multi Index Moderately or give up 0.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Cboe UK Consumer  vs.  HL Multi Index Moderately

Pair Trading with Cboe UK and HL Multi

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

The idea behind Cboe UK Consumer and HL Multi Index Moderately 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 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.