Correlation Between Cboe UK and JPMorgan ETFs

Can any of the company-specific risk be diversified away by investing in both Cboe UK and JPMorgan ETFs 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 JPMorgan ETFs 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 JPMorgan ETFs ICAV, you can compare the effects of market volatilities on Cboe UK and JPMorgan ETFs 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 JPMorgan ETFs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cboe UK and JPMorgan ETFs.

Diversification Opportunities for Cboe UK and JPMorgan ETFs

0.6

Correlation Coefficient

Cboe UK  JPMorgan ETFs

Poor diversification

The 3 months correlation between Cboe and JPMorgan is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Cboe UK Consumer and JPMorgan ETFs ICAV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JPMorgan ETFs ICAV 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 JPMorgan ETFs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JPMorgan ETFs ICAV has no effect on the direction of Cboe UK i.e., Cboe UK and JPMorgan ETFs go up and down completely randomly.

Pair Corralation between Cboe UK and JPMorgan ETFs

Assuming the 90 days trading horizon Cboe UK is expected to generate 1.4 times less return on investment than JPMorgan ETFs. In addition to that, Cboe UK is 1.27 times more volatile than JPMorgan ETFs ICAV. It trades about 0.06 of its total potential returns per unit of risk. JPMorgan ETFs ICAV is currently generating about 0.12 per unit of volatility. If you would invest  3,983  in JPMorgan ETFs ICAV on October 26, 2024 and sell it today you would earn a total of  2,103  from holding JPMorgan ETFs ICAV or generate 52.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.61%
Values	Daily Returns

Cboe UK Consumer  vs.  JPMorgan ETFs ICAV

Pair Trading with Cboe UK and JPMorgan ETFs

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

The idea behind Cboe UK Consumer and JPMorgan ETFs ICAV 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.