Correlation Between CROBEX and AMS Small

Can any of the company-specific risk be diversified away by investing in both CROBEX and AMS Small 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 CROBEX and AMS Small into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CROBEX and AMS Small Cap, you can compare the effects of market volatilities on CROBEX and AMS Small 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 CROBEX with a short position of AMS Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of CROBEX and AMS Small.

Diversification Opportunities for CROBEX and AMS Small

0.59

Correlation Coefficient

CROBEX  AMS Small

Very weak diversification

The 3 months correlation between CROBEX and AMS is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding CROBEX and AMS Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMS Small Cap and CROBEX 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 CROBEX are associated (or correlated) with AMS Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMS Small Cap has no effect on the direction of CROBEX i.e., CROBEX and AMS Small go up and down completely randomly.

Pair Corralation between CROBEX and AMS Small

Assuming the 90 days trading horizon CROBEX is expected to generate 1.84 times less return on investment than AMS Small. But when comparing it to its historical volatility, CROBEX is 1.81 times less risky than AMS Small. It trades about 0.2 of its potential returns per unit of risk. AMS Small Cap is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  126,630  in AMS Small Cap on November 19, 2024 and sell it today you would earn a total of  5,229  from holding AMS Small Cap or generate 4.13% return on investment over 90 days.

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

CROBEX  vs.  AMS Small Cap

Pair Trading with CROBEX and AMS Small

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

The idea behind CROBEX and AMS Small Cap 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.