Correlation Between Cboe UK and Wise Plc

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

Diversification Opportunities for Cboe UK and Wise Plc

0.96

Correlation Coefficient

Cboe UK  Wise Plc

Almost no diversification

The 3 months correlation between Cboe and Wise is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Cboe UK Consumer and Wise plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wise plc 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 Wise Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wise plc has no effect on the direction of Cboe UK i.e., Cboe UK and Wise Plc go up and down completely randomly.

Pair Corralation between Cboe UK and Wise Plc

Assuming the 90 days trading horizon Cboe UK is expected to generate 6.08 times less return on investment than Wise Plc. But when comparing it to its historical volatility, Cboe UK Consumer is 1.74 times less risky than Wise Plc. It trades about 0.16 of its potential returns per unit of risk. Wise plc is currently generating about 0.55 of returns per unit of risk over similar time horizon. If you would invest  84,000  in Wise plc on September 19, 2024 and sell it today you would earn a total of  15,100  from holding Wise plc or generate 17.98% return on investment over 90 days.

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

Cboe UK Consumer  vs.  Wise plc

Pair Trading with Cboe UK and Wise Plc

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

The idea behind Cboe UK Consumer and Wise plc 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.