Correlation Between LONDON STEXUNSPADRS12 and Cboe Global

Can any of the company-specific risk be diversified away by investing in both LONDON STEXUNSPADRS12 and Cboe Global 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 LONDON STEXUNSPADRS12 and Cboe Global into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between LONDON STEXUNSPADRS12 and Cboe Global Markets, you can compare the effects of market volatilities on LONDON STEXUNSPADRS12 and Cboe Global 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 LONDON STEXUNSPADRS12 with a short position of Cboe Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of LONDON STEXUNSPADRS12 and Cboe Global.

Diversification Opportunities for LONDON STEXUNSPADRS12 and Cboe Global

0.62

Correlation Coefficient

LONDON STEXUNSPADRS12  Cboe Global

Poor diversification

The 3 months correlation between LONDON and Cboe is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding LONDON STEXUNSPADRS12 and Cboe Global Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cboe Global Markets and LONDON STEXUNSPADRS12 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 LONDON STEXUNSPADRS12 are associated (or correlated) with Cboe Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cboe Global Markets has no effect on the direction of LONDON STEXUNSPADRS12 i.e., LONDON STEXUNSPADRS12 and Cboe Global go up and down completely randomly.

Pair Corralation between LONDON STEXUNSPADRS12 and Cboe Global

Assuming the 90 days trading horizon LONDON STEXUNSPADRS12 is expected to generate 1.08 times more return on investment than Cboe Global. However, LONDON STEXUNSPADRS12 is 1.08 times more volatile than Cboe Global Markets. It trades about 0.08 of its potential returns per unit of risk. Cboe Global Markets is currently generating about 0.08 per unit of risk. If you would invest  1,942  in LONDON STEXUNSPADRS12 on September 15, 2024 and sell it today you would earn a total of  1,438  from holding LONDON STEXUNSPADRS12 or generate 74.05% return on investment over 90 days.

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

LONDON STEXUNSPADRS12  vs.  Cboe Global Markets

LONDON STEXUNSPADRS12

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LONDON STEXUNSPADRS12 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, LONDON STEXUNSPADRS12 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Cboe Global Markets

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Cboe Global Markets has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Cboe Global is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with LONDON STEXUNSPADRS12 and Cboe Global

The main advantage of trading using opposite LONDON STEXUNSPADRS12 and Cboe Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LONDON STEXUNSPADRS12 position performs unexpectedly, Cboe Global 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 Cboe Global will offset losses from the drop in Cboe Global's long position.

The idea behind LONDON STEXUNSPADRS12 and Cboe Global Markets 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.