Correlation Between Cboe UK and MG Credit

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

Diversification Opportunities for Cboe UK and MG Credit

0.43

Correlation Coefficient

Cboe UK  MG Credit

Very weak diversification

The 3 months correlation between Cboe and MGCI is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Cboe UK Consumer and MG Credit Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MG Credit Income 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 MG Credit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MG Credit Income has no effect on the direction of Cboe UK i.e., Cboe UK and MG Credit go up and down completely randomly.

Pair Corralation between Cboe UK and MG Credit

Assuming the 90 days trading horizon Cboe UK Consumer is expected to under-perform the MG Credit. But the index apears to be less risky and, when comparing its historical volatility, Cboe UK Consumer is 1.17 times less risky than MG Credit. The index trades about -0.22 of its potential returns per unit of risk. The MG Credit Income is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  9,680  in MG Credit Income on October 8, 2024 and sell it today you would earn a total of  10.00  from holding MG Credit Income or generate 0.1% return on investment over 90 days.

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

Cboe UK Consumer  vs.  MG Credit Income

Pair Trading with Cboe UK and MG Credit

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

The idea behind Cboe UK Consumer and MG Credit Income 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.