Correlation Between Cboe UK and JPM Research

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

Diversification Opportunities for Cboe UK and JPM Research

0.86

Correlation Coefficient

Cboe UK  JPM Research

Very poor diversification

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

Pair Corralation between Cboe UK and JPM Research

Assuming the 90 days trading horizon Cboe UK Consumer is expected to under-perform the JPM Research. In addition to that, Cboe UK is 1.09 times more volatile than JPM Research Enhanced. It trades about -0.16 of its total potential returns per unit of risk. JPM Research Enhanced is currently generating about -0.16 per unit of volatility. If you would invest  271,000  in JPM Research Enhanced on December 24, 2024 and sell it today you would lose (23,925) from holding JPM Research Enhanced or give up 8.83% of portfolio value over 90 days.

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

Cboe UK Consumer  vs.  JPM Research Enhanced

Pair Trading with Cboe UK and JPM Research

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

The idea behind Cboe UK Consumer and JPM Research Enhanced 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 Anywhere module to track or share privately all of your investments from the convenience of any device.