Correlation Between ICEX Main and SPBVL Peru

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

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

Diversification Opportunities for ICEX Main and SPBVL Peru

-0.52

Correlation Coefficient

ICEX Main  SPBVL Peru

Excellent diversification

The 3 months correlation between ICEX and SPBVL is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding ICEX Main and SPBVL Peru General in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPBVL Peru General and ICEX Main 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 ICEX Main are associated (or correlated) with SPBVL Peru. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPBVL Peru General has no effect on the direction of ICEX Main i.e., ICEX Main and SPBVL Peru go up and down completely randomly.

Pair Corralation between ICEX Main and SPBVL Peru

Assuming the 90 days trading horizon ICEX Main is expected to under-perform the SPBVL Peru. In addition to that, ICEX Main is 1.11 times more volatile than SPBVL Peru General. It trades about -0.15 of its total potential returns per unit of risk. SPBVL Peru General is currently generating about -0.06 per unit of volatility. If you would invest  2,894,979  in SPBVL Peru General on November 27, 2024 and sell it today you would lose (25,993) from holding SPBVL Peru General or give up 0.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

ICEX Main  vs.  SPBVL Peru General

Pair Trading with ICEX Main and SPBVL Peru

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

The idea behind ICEX Main and SPBVL Peru General 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.