Correlation Between CROBEX and ICEX Main

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

By analyzing existing cross correlation between CROBEX and ICEX Main, you can compare the effects of market volatilities on CROBEX and ICEX Main 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 ICEX Main. Check out your portfolio center. Please also check ongoing floating volatility patterns of CROBEX and ICEX Main.

Diversification Opportunities for CROBEX and ICEX Main

0.81

Correlation Coefficient

CROBEX  ICEX Main

Very poor diversification

The 3 months correlation between CROBEX and ICEX is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding CROBEX and ICEX Main in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ICEX Main 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 ICEX Main. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ICEX Main has no effect on the direction of CROBEX i.e., CROBEX and ICEX Main go up and down completely randomly.

Pair Corralation between CROBEX and ICEX Main

Assuming the 90 days trading horizon CROBEX is expected to generate 1.68 times less return on investment than ICEX Main. But when comparing it to its historical volatility, CROBEX is 2.07 times less risky than ICEX Main. It trades about 0.31 of its potential returns per unit of risk. ICEX Main is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  203,550  in ICEX Main on September 1, 2024 and sell it today you would earn a total of  27,169  from holding ICEX Main or generate 13.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

CROBEX  vs.  ICEX Main

Pair Trading with CROBEX and ICEX Main

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

The idea behind CROBEX and ICEX Main 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.