Correlation Between Road Studio and WSE WIG

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

By analyzing existing cross correlation between Road Studio SA and WSE WIG INDEX, you can compare the effects of market volatilities on Road Studio and WSE WIG 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 Road Studio with a short position of WSE WIG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Road Studio and WSE WIG.

Diversification Opportunities for Road Studio and WSE WIG

0.67

Correlation Coefficient

Road Studio  WSE WIG

Poor diversification

The 3 months correlation between Road and WSE is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Road Studio SA and WSE WIG INDEX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WSE WIG INDEX and Road Studio 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 Road Studio SA are associated (or correlated) with WSE WIG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WSE WIG INDEX has no effect on the direction of Road Studio i.e., Road Studio and WSE WIG go up and down completely randomly.

Pair Corralation between Road Studio and WSE WIG

Assuming the 90 days trading horizon Road Studio SA is expected to under-perform the WSE WIG. In addition to that, Road Studio is 2.72 times more volatile than WSE WIG INDEX. It trades about -0.19 of its total potential returns per unit of risk. WSE WIG INDEX is currently generating about -0.09 per unit of volatility. If you would invest  8,474,791  in WSE WIG INDEX on September 3, 2024 and sell it today you would lose (537,809) from holding WSE WIG INDEX or give up 6.35% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.83%
Values	Daily Returns

Road Studio SA  vs.  WSE WIG INDEX

Pair Trading with Road Studio and WSE WIG

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

The idea behind Road Studio SA and WSE WIG INDEX 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 Global Correlations module to find global opportunities by holding instruments from different markets.