Correlation Between BIST Electricity and AMS Small

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

By analyzing existing cross correlation between BIST Electricity and AMS Small Cap, you can compare the effects of market volatilities on BIST Electricity and AMS Small 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 BIST Electricity with a short position of AMS Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of BIST Electricity and AMS Small.

Diversification Opportunities for BIST Electricity and AMS Small

-0.75

Correlation Coefficient

BIST Electricity  AMS Small

Pay attention - limited upside

The 3 months correlation between BIST and AMS is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding BIST Electricity and AMS Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMS Small Cap and BIST Electricity 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 BIST Electricity are associated (or correlated) with AMS Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMS Small Cap has no effect on the direction of BIST Electricity i.e., BIST Electricity and AMS Small go up and down completely randomly.

Pair Corralation between BIST Electricity and AMS Small

Assuming the 90 days trading horizon BIST Electricity is expected to under-perform the AMS Small. In addition to that, BIST Electricity is 1.46 times more volatile than AMS Small Cap. It trades about -0.06 of its total potential returns per unit of risk. AMS Small Cap is currently generating about -0.01 per unit of volatility. If you would invest  125,892  in AMS Small Cap on September 1, 2024 and sell it today you would lose (3,214) from holding AMS Small Cap or give up 2.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.38%
Values	Daily Returns

BIST Electricity  vs.  AMS Small Cap

Pair Trading with BIST Electricity and AMS Small

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

The idea behind BIST Electricity and AMS Small Cap 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.