Correlation Between IBEX 35 and Fondo Mutuo

Can any of the company-specific risk be diversified away by investing in both IBEX 35 and Fondo Mutuo 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 IBEX 35 and Fondo Mutuo into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IBEX 35 Index and Fondo Mutuo ETF, you can compare the effects of market volatilities on IBEX 35 and Fondo Mutuo 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 IBEX 35 with a short position of Fondo Mutuo. Check out your portfolio center. Please also check ongoing floating volatility patterns of IBEX 35 and Fondo Mutuo.

Diversification Opportunities for IBEX 35 and Fondo Mutuo

0.89

Correlation Coefficient

IBEX 35  Fondo Mutuo

Very poor diversification

The 3 months correlation between IBEX and Fondo is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding IBEX 35 Index and Fondo Mutuo ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fondo Mutuo ETF and IBEX 35 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 IBEX 35 Index are associated (or correlated) with Fondo Mutuo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fondo Mutuo ETF has no effect on the direction of IBEX 35 i.e., IBEX 35 and Fondo Mutuo go up and down completely randomly.

Pair Corralation between IBEX 35 and Fondo Mutuo

Assuming the 90 days trading horizon IBEX 35 Index is expected to generate 1.3 times more return on investment than Fondo Mutuo. However, IBEX 35 is 1.3 times more volatile than Fondo Mutuo ETF. It trades about 0.49 of its potential returns per unit of risk. Fondo Mutuo ETF is currently generating about 0.33 per unit of risk. If you would invest  1,199,710  in IBEX 35 Index on November 27, 2024 and sell it today you would earn a total of  111,970  from holding IBEX 35 Index or generate 9.33% return on investment over 90 days.

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

IBEX 35 Index  vs.  Fondo Mutuo ETF

Pair Trading with IBEX 35 and Fondo Mutuo

The main advantage of trading using opposite IBEX 35 and Fondo Mutuo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IBEX 35 position performs unexpectedly, Fondo Mutuo 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 Fondo Mutuo will offset losses from the drop in Fondo Mutuo's long position.

The idea behind IBEX 35 Index and Fondo Mutuo ETF 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.