Correlation Between Swiss Leader and UBS Vitainvest

Can any of the company-specific risk be diversified away by investing in both Swiss Leader and UBS Vitainvest 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 Swiss Leader and UBS Vitainvest into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Swiss Leader Price and UBS Vitainvest , you can compare the effects of market volatilities on Swiss Leader and UBS Vitainvest 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 Swiss Leader with a short position of UBS Vitainvest. Check out your portfolio center. Please also check ongoing floating volatility patterns of Swiss Leader and UBS Vitainvest.

Diversification Opportunities for Swiss Leader and UBS Vitainvest

0.63

Correlation Coefficient

Swiss Leader  UBS Vitainvest

Poor diversification

The 3 months correlation between Swiss and UBS is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Swiss Leader Price and UBS Vitainvest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UBS Vitainvest and Swiss Leader 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 Swiss Leader Price are associated (or correlated) with UBS Vitainvest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UBS Vitainvest has no effect on the direction of Swiss Leader i.e., Swiss Leader and UBS Vitainvest go up and down completely randomly.

Pair Corralation between Swiss Leader and UBS Vitainvest

Assuming the 90 days trading horizon Swiss Leader Price is expected to generate 1.99 times more return on investment than UBS Vitainvest. However, Swiss Leader is 1.99 times more volatile than UBS Vitainvest . It trades about -0.05 of its potential returns per unit of risk. UBS Vitainvest is currently generating about -0.23 per unit of risk. If you would invest  194,573  in Swiss Leader Price on October 9, 2024 and sell it today you would lose (1,063) from holding Swiss Leader Price or give up 0.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.33%
Values	Daily Returns

Swiss Leader Price  vs.  UBS Vitainvest

Pair Trading with Swiss Leader and UBS Vitainvest

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

The idea behind Swiss Leader Price and UBS Vitainvest 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.