Correlation Between Cboe UK and Vanguard USD

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Can any of the company-specific risk be diversified away by investing in both Cboe UK and Vanguard USD 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 Vanguard USD 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 Vanguard USD Corporate, you can compare the effects of market volatilities on Cboe UK and Vanguard USD 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 Vanguard USD. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cboe UK and Vanguard USD.

Diversification Opportunities for Cboe UK and Vanguard USD

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Cboe and Vanguard is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Cboe UK Consumer and Vanguard USD Corporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard USD Corporate 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 Vanguard USD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard USD Corporate has no effect on the direction of Cboe UK i.e., Cboe UK and Vanguard USD go up and down completely randomly.
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Pair Corralation between Cboe UK and Vanguard USD

Assuming the 90 days trading horizon Cboe UK Consumer is expected to generate 2.25 times more return on investment than Vanguard USD. However, Cboe UK is 2.25 times more volatile than Vanguard USD Corporate. It trades about 0.4 of its potential returns per unit of risk. Vanguard USD Corporate is currently generating about 0.34 per unit of risk. If you would invest  2,934,295  in Cboe UK Consumer on August 25, 2024 and sell it today you would earn a total of  288,421  from holding Cboe UK Consumer or generate 9.83% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Cboe UK Consumer  vs.  Vanguard USD Corporate

 Performance 
       Timeline  

Cboe UK and Vanguard USD Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Cboe UK and Vanguard USD

The main advantage of trading using opposite Cboe UK and Vanguard USD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cboe UK position performs unexpectedly, Vanguard USD 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 Vanguard USD will offset losses from the drop in Vanguard USD's long position.
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The idea behind Cboe UK Consumer and Vanguard USD Corporate 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.

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