Correlation Between Cboe UK and 3I Group

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Can any of the company-specific risk be diversified away by investing in both Cboe UK and 3I Group 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 3I Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cboe UK Consumer and 3I Group PLC, you can compare the effects of market volatilities on Cboe UK and 3I Group 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 Cboe UK with a short position of 3I Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cboe UK and 3I Group.

Diversification Opportunities for Cboe UK and 3I Group

0.93
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Cboe and III is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Cboe UK Consumer and 3I Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3I Group PLC and Cboe UK 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 Cboe UK Consumer are associated (or correlated) with 3I Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 3I Group PLC has no effect on the direction of Cboe UK i.e., Cboe UK and 3I Group go up and down completely randomly.
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Pair Corralation between Cboe UK and 3I Group

Assuming the 90 days trading horizon Cboe UK Consumer is expected to generate 0.87 times more return on investment than 3I Group. However, Cboe UK Consumer is 1.15 times less risky than 3I Group. It trades about -0.04 of its potential returns per unit of risk. 3I Group PLC is currently generating about -0.11 per unit of risk. If you would invest  3,242,991  in Cboe UK Consumer on September 24, 2024 and sell it today you would lose (27,345) from holding Cboe UK Consumer or give up 0.84% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Cboe UK Consumer  vs.  3I Group PLC

 Performance 
       Timeline  

Cboe UK and 3I Group Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Cboe UK and 3I Group

The main advantage of trading using opposite Cboe UK and 3I Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cboe UK position performs unexpectedly, 3I Group 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 3I Group will offset losses from the drop in 3I Group's long position.
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The idea behind Cboe UK Consumer and 3I Group PLC 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.

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