Correlation Between SCOR PK and Select STOXX

Can any of the company-specific risk be diversified away by investing in both SCOR PK and Select STOXX 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 SCOR PK and Select STOXX into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SCOR PK and Select STOXX Europe, you can compare the effects of market volatilities on SCOR PK and Select STOXX 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 SCOR PK with a short position of Select STOXX. Check out your portfolio center. Please also check ongoing floating volatility patterns of SCOR PK and Select STOXX.

Diversification Opportunities for SCOR PK and Select STOXX

0.88

Correlation Coefficient

SCOR PK  Select STOXX

Very poor diversification

The 3 months correlation between SCOR and Select is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding SCOR PK and Select STOXX Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select STOXX Europe and SCOR PK 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 SCOR PK are associated (or correlated) with Select STOXX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select STOXX Europe has no effect on the direction of SCOR PK i.e., SCOR PK and Select STOXX go up and down completely randomly.

Pair Corralation between SCOR PK and Select STOXX

Assuming the 90 days horizon SCOR PK is expected to generate 1.53 times less return on investment than Select STOXX. In addition to that, SCOR PK is 1.55 times more volatile than Select STOXX Europe. It trades about 0.12 of its total potential returns per unit of risk. Select STOXX Europe is currently generating about 0.28 per unit of volatility. If you would invest  2,457  in Select STOXX Europe on December 27, 2024 and sell it today you would earn a total of  982.00  from holding Select STOXX Europe or generate 39.97% return on investment over 90 days.

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

SCOR PK  vs.  Select STOXX Europe

SCOR PK

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SCOR PK are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SCOR PK showed solid returns over the last few months and may actually be approaching a breakup point.

Select STOXX Europe

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Select STOXX Europe are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Select STOXX exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SCOR PK and Select STOXX

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

The idea behind SCOR PK and Select STOXX Europe 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.