Correlation Between FXP and ITC
Can any of the company-specific risk be diversified away by investing in both FXP and ITC 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 FXP and ITC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FXP and ITC, you can compare the effects of market volatilities on FXP and ITC 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 FXP with a short position of ITC. Check out your portfolio center. Please also check ongoing floating volatility patterns of FXP and ITC.
Diversification Opportunities for FXP and ITC
Pay attention - limited upside
The 3 months correlation between FXP and ITC is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding FXP and ITC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITC and FXP 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 FXP are associated (or correlated) with ITC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITC has no effect on the direction of FXP i.e., FXP and ITC go up and down completely randomly.
Pair Corralation between FXP and ITC
If you would invest 0.62 in ITC on August 23, 2024 and sell it today you would earn a total of 0.48 from holding ITC or generate 76.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
FXP vs. ITC
Performance |
| Timeline |
| FXP |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| ITC |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
FXP and ITC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FXP and ITC
The main advantage of trading using opposite FXP and ITC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FXP position performs unexpectedly, ITC 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 ITC will offset losses from the drop in ITC's long position.The idea behind FXP and ITC 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.Check out your portfolio center.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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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