Correlation Between FT Cboe and Vulcan Value

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

By analyzing existing cross correlation between FT Cboe Vest and Vulcan Value Partners, you can compare the effects of market volatilities on FT Cboe and Vulcan Value 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 FT Cboe with a short position of Vulcan Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of FT Cboe and Vulcan Value.

Diversification Opportunities for FT Cboe and Vulcan Value

0.81

Correlation Coefficient

FT Cboe  Vulcan Value

Very poor diversification

The 3 months correlation between XISE and Vulcan is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding FT Cboe Vest and Vulcan Value Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Value Partners and FT Cboe 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 FT Cboe Vest are associated (or correlated) with Vulcan Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Value Partners has no effect on the direction of FT Cboe i.e., FT Cboe and Vulcan Value go up and down completely randomly.

Pair Corralation between FT Cboe and Vulcan Value

Given the investment horizon of 90 days FT Cboe is expected to generate 2.39 times less return on investment than Vulcan Value. But when comparing it to its historical volatility, FT Cboe Vest is 8.22 times less risky than Vulcan Value. It trades about 0.2 of its potential returns per unit of risk. Vulcan Value Partners is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,628  in Vulcan Value Partners on September 16, 2024 and sell it today you would earn a total of  246.00  from holding Vulcan Value Partners or generate 9.36% return on investment over 90 days.

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

FT Cboe Vest  vs.  Vulcan Value Partners

FT Cboe Vest

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FT Cboe Vest are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, FT Cboe is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Vulcan Value Partners

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Value Partners are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Vulcan Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with FT Cboe and Vulcan Value

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

The idea behind FT Cboe Vest and Vulcan Value Partners 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .