Correlation Between Consol Energy and Blue-Chip SBITOP

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Apply Can any of the company-specific risk be diversified away by investing in both Consol Energy and Blue-Chip SBITOP 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 Consol Energy and Blue-Chip SBITOP into the same portfolio, which is an essential part of the fundamental portfolio management process.

Diversification Opportunities for Consol Energy and Blue-Chip SBITOP

Pair Corralation between Consol Energy and Blue-Chip SBITOP

Consol Energy  vs.  Blue-Chip SBITOP

Pair Trading with Consol Energy and Blue-Chip SBITOP

The main advantage of trading using opposite Consol Energy and Blue-Chip SBITOP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consol Energy position performs unexpectedly, Blue-Chip SBITOP 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 Blue-Chip SBITOP will offset losses from the drop in Blue-Chip SBITOP's long position.The idea behind Consol Energy and Blue-Chip SBITOP 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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