Correlation Between Cboe UK and Invesco EURO

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

Diversification Opportunities for Cboe UK and Invesco EURO

-0.48

Correlation Coefficient

Cboe UK  Invesco EURO

Very good diversification

The 3 months correlation between Cboe and Invesco is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Cboe UK Consumer and Invesco EURO STOXX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco EURO STOXX 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 Invesco EURO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco EURO STOXX has no effect on the direction of Cboe UK i.e., Cboe UK and Invesco EURO go up and down completely randomly.

Pair Corralation between Cboe UK and Invesco EURO

Assuming the 90 days trading horizon Cboe UK Consumer is expected to under-perform the Invesco EURO. But the index apears to be less risky and, when comparing its historical volatility, Cboe UK Consumer is 1.6 times less risky than Invesco EURO. The index trades about -0.16 of its potential returns per unit of risk. The Invesco EURO STOXX is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  869,250  in Invesco EURO STOXX on December 24, 2024 and sell it today you would earn a total of  317,450  from holding Invesco EURO STOXX or generate 36.52% return on investment over 90 days.

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

Cboe UK Consumer  vs.  Invesco EURO STOXX

Pair Trading with Cboe UK and Invesco EURO

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

The idea behind Cboe UK Consumer and Invesco EURO STOXX 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.