Correlation Between European Equity and XAI Octagon

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

By analyzing existing cross correlation between European Equity Closed and XAI Octagon Floating, you can compare the effects of market volatilities on European Equity and XAI Octagon 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 European Equity with a short position of XAI Octagon. Check out your portfolio center. Please also check ongoing floating volatility patterns of European Equity and XAI Octagon.

Diversification Opportunities for European Equity and XAI Octagon

-0.7

Correlation Coefficient

European Equity  XAI Octagon

Excellent diversification

The 3 months correlation between European and XAI is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding European Equity Closed and XAI Octagon Floating in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XAI Octagon Floating and European Equity 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 European Equity Closed are associated (or correlated) with XAI Octagon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XAI Octagon Floating has no effect on the direction of European Equity i.e., European Equity and XAI Octagon go up and down completely randomly.

Pair Corralation between European Equity and XAI Octagon

Considering the 90-day investment horizon European Equity Closed is expected to under-perform the XAI Octagon. In addition to that, European Equity is 2.19 times more volatile than XAI Octagon Floating. It trades about -0.06 of its total potential returns per unit of risk. XAI Octagon Floating is currently generating about 0.12 per unit of volatility. If you would invest  2,377  in XAI Octagon Floating on September 27, 2024 and sell it today you would earn a total of  144.00  from holding XAI Octagon Floating or generate 6.06% return on investment over 90 days.

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

European Equity Closed  vs.  XAI Octagon Floating

European Equity Closed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days European Equity Closed has generated negative risk-adjusted returns adding no value to fund investors. Despite latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

XAI Octagon Floating

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in XAI Octagon Floating are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, XAI Octagon is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with European Equity and XAI Octagon

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

The idea behind European Equity Closed and XAI Octagon Floating 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.