Correlation Between Cboe UK and XLMedia PLC

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

Diversification Opportunities for Cboe UK and XLMedia PLC

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between Cboe and XLMedia is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Cboe UK Consumer and XLMedia PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XLMedia 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 XLMedia PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XLMedia PLC has no effect on the direction of Cboe UK i.e., Cboe UK and XLMedia PLC go up and down completely randomly.
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Pair Corralation between Cboe UK and XLMedia PLC

Assuming the 90 days trading horizon Cboe UK is expected to generate 3.33 times less return on investment than XLMedia PLC. But when comparing it to its historical volatility, Cboe UK Consumer is 6.55 times less risky than XLMedia PLC. It trades about 0.07 of its potential returns per unit of risk. XLMedia PLC is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  850.00  in XLMedia PLC on August 31, 2024 and sell it today you would earn a total of  340.00  from holding XLMedia PLC or generate 40.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy98.95%
ValuesDaily Returns

Cboe UK Consumer  vs.  XLMedia PLC

 Performance 
       Timeline  

Cboe UK and XLMedia PLC Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Cboe UK and XLMedia PLC

The main advantage of trading using opposite Cboe UK and XLMedia PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cboe UK position performs unexpectedly, XLMedia PLC 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 XLMedia PLC will offset losses from the drop in XLMedia PLC's long position.
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The idea behind Cboe UK Consumer and XLMedia 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.

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