Correlation Between Swiss Leader and Vanguard EUR

Can any of the company-specific risk be diversified away by investing in both Swiss Leader and Vanguard EUR 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 Vanguard EUR 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 Vanguard EUR Eurozone, you can compare the effects of market volatilities on Swiss Leader and Vanguard EUR 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 Vanguard EUR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Swiss Leader and Vanguard EUR.

Diversification Opportunities for Swiss Leader and Vanguard EUR

0.19

Correlation Coefficient

Swiss Leader  Vanguard EUR

Average diversification

The 3 months correlation between Swiss and Vanguard is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Swiss Leader Price and Vanguard EUR Eurozone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard EUR Eurozone 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 Vanguard EUR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard EUR Eurozone has no effect on the direction of Swiss Leader i.e., Swiss Leader and Vanguard EUR go up and down completely randomly.

Pair Corralation between Swiss Leader and Vanguard EUR

Assuming the 90 days trading horizon Swiss Leader Price is expected to generate 2.0 times more return on investment than Vanguard EUR. However, Swiss Leader is 2.0 times more volatile than Vanguard EUR Eurozone. It trades about 0.05 of its potential returns per unit of risk. Vanguard EUR Eurozone is currently generating about 0.03 per unit of risk. If you would invest  198,350  in Swiss Leader Price on October 25, 2024 and sell it today you would earn a total of  3,784  from holding Swiss Leader Price or generate 1.91% return on investment over 90 days.

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

Swiss Leader Price  vs.  Vanguard EUR Eurozone

Pair Trading with Swiss Leader and Vanguard EUR

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

The idea behind Swiss Leader Price and Vanguard EUR Eurozone 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.