Correlation Between SBF 120 and Lyxor Treasury

Can any of the company-specific risk be diversified away by investing in both SBF 120 and Lyxor Treasury 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 SBF 120 and Lyxor Treasury into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SBF 120 and Lyxor Treasury 10Y, you can compare the effects of market volatilities on SBF 120 and Lyxor Treasury 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 SBF 120 with a short position of Lyxor Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of SBF 120 and Lyxor Treasury.

Diversification Opportunities for SBF 120 and Lyxor Treasury

0.06

Correlation Coefficient

SBF 120  Lyxor Treasury

Significant diversification

The 3 months correlation between SBF and Lyxor is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding SBF 120 and Lyxor Treasury 10Y in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor Treasury 10Y and SBF 120 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 SBF 120 are associated (or correlated) with Lyxor Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor Treasury 10Y has no effect on the direction of SBF 120 i.e., SBF 120 and Lyxor Treasury go up and down completely randomly.

Pair Corralation between SBF 120 and Lyxor Treasury

Assuming the 90 days trading horizon SBF 120 is expected to generate 1.01 times more return on investment than Lyxor Treasury. However, SBF 120 is 1.01 times more volatile than Lyxor Treasury 10Y. It trades about 0.25 of its potential returns per unit of risk. Lyxor Treasury 10Y is currently generating about -0.02 per unit of risk. If you would invest  547,904  in SBF 120 on December 2, 2024 and sell it today you would earn a total of  64,338  from holding SBF 120 or generate 11.74% return on investment over 90 days.

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

SBF 120  vs.  Lyxor Treasury 10Y

Pair Trading with SBF 120 and Lyxor Treasury

The main advantage of trading using opposite SBF 120 and Lyxor Treasury positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SBF 120 position performs unexpectedly, Lyxor Treasury 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 Lyxor Treasury will offset losses from the drop in Lyxor Treasury's long position.

The idea behind SBF 120 and Lyxor Treasury 10Y 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.