Correlation Between Cboe UK and Invesco FTSE

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

Diversification Opportunities for Cboe UK and Invesco FTSE

Pair Corralation between Cboe UK and Invesco FTSE

Cboe UK Consumer  vs.  Invesco FTSE Emerging

Pair Trading with Cboe UK and Invesco FTSE

The main advantage of trading using opposite Cboe UK and Invesco FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cboe UK position performs unexpectedly, Invesco FTSE 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 Invesco FTSE will offset losses from the drop in Invesco FTSE's long position.The idea behind Cboe UK Consumer and Invesco FTSE Emerging 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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