Correlation Between BIST Electricity and Galata Wind

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

By analyzing existing cross correlation between BIST Electricity and Galata Wind Enerji, you can compare the effects of market volatilities on BIST Electricity and Galata Wind 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 Galata Wind. Check out your portfolio center. Please also check ongoing floating volatility patterns of BIST Electricity and Galata Wind.

Diversification Opportunities for BIST Electricity and Galata Wind

0.77

Correlation Coefficient

BIST Electricity  Galata Wind

Poor diversification

The 3 months correlation between BIST and Galata is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding BIST Electricity and Galata Wind Enerji in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galata Wind Enerji 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 Galata Wind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Galata Wind Enerji has no effect on the direction of BIST Electricity i.e., BIST Electricity and Galata Wind go up and down completely randomly.

Pair Corralation between BIST Electricity and Galata Wind

Assuming the 90 days trading horizon BIST Electricity is expected to under-perform the Galata Wind. But the index apears to be less risky and, when comparing its historical volatility, BIST Electricity is 1.81 times less risky than Galata Wind. The index trades about -0.12 of its potential returns per unit of risk. The Galata Wind Enerji is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  2,830  in Galata Wind Enerji on December 5, 2024 and sell it today you would lose (64.00) from holding Galata Wind Enerji or give up 2.26% of portfolio value over 90 days.

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

BIST Electricity  vs.  Galata Wind Enerji

Pair Trading with BIST Electricity and Galata Wind

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

The idea behind BIST Electricity and Galata Wind Enerji 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.