Correlation Between SOFTWARE MANSION and MWIG40

Can any of the company-specific risk be diversified away by investing in both SOFTWARE MANSION and MWIG40 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 SOFTWARE MANSION and MWIG40 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SOFTWARE MANSION SPOLKA and MWIG40, you can compare the effects of market volatilities on SOFTWARE MANSION and MWIG40 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 SOFTWARE MANSION with a short position of MWIG40. Check out your portfolio center. Please also check ongoing floating volatility patterns of SOFTWARE MANSION and MWIG40.

Diversification Opportunities for SOFTWARE MANSION and MWIG40

0.33

Correlation Coefficient

SOFTWARE MANSION  MWIG40

Weak diversification

The 3 months correlation between SOFTWARE and MWIG40 is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding SOFTWARE MANSION SPOLKA and MWIG40 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MWIG40 and SOFTWARE MANSION 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 SOFTWARE MANSION SPOLKA are associated (or correlated) with MWIG40. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MWIG40 has no effect on the direction of SOFTWARE MANSION i.e., SOFTWARE MANSION and MWIG40 go up and down completely randomly.

Pair Corralation between SOFTWARE MANSION and MWIG40

Assuming the 90 days trading horizon SOFTWARE MANSION SPOLKA is expected to under-perform the MWIG40. In addition to that, SOFTWARE MANSION is 2.46 times more volatile than MWIG40. It trades about -0.02 of its total potential returns per unit of risk. MWIG40 is currently generating about -0.04 per unit of volatility. If you would invest  632,023  in MWIG40 on September 4, 2024 and sell it today you would lose (16,858) from holding MWIG40 or give up 2.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	93.65%
Values	Daily Returns

SOFTWARE MANSION SPOLKA  vs.  MWIG40

Pair Trading with SOFTWARE MANSION and MWIG40

The main advantage of trading using opposite SOFTWARE MANSION and MWIG40 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SOFTWARE MANSION position performs unexpectedly, MWIG40 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 MWIG40 will offset losses from the drop in MWIG40's long position.

The idea behind SOFTWARE MANSION SPOLKA and MWIG40 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.