Correlation Between ISEQ 20 and KLP AksjeEuropa

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Can any of the company-specific risk be diversified away by investing in both ISEQ 20 and KLP AksjeEuropa 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 ISEQ 20 and KLP AksjeEuropa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ISEQ 20 Price and KLP AksjeEuropa Indeks, you can compare the effects of market volatilities on ISEQ 20 and KLP AksjeEuropa 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 ISEQ 20 with a short position of KLP AksjeEuropa. Check out your portfolio center. Please also check ongoing floating volatility patterns of ISEQ 20 and KLP AksjeEuropa.

Diversification Opportunities for ISEQ 20 and KLP AksjeEuropa

0.36
  Correlation Coefficient

Weak diversification

The 3 months correlation between ISEQ and KLP is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding ISEQ 20 Price and KLP AksjeEuropa Indeks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KLP AksjeEuropa Indeks and ISEQ 20 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 ISEQ 20 Price are associated (or correlated) with KLP AksjeEuropa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KLP AksjeEuropa Indeks has no effect on the direction of ISEQ 20 i.e., ISEQ 20 and KLP AksjeEuropa go up and down completely randomly.
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Pair Corralation between ISEQ 20 and KLP AksjeEuropa

Assuming the 90 days trading horizon ISEQ 20 Price is expected to under-perform the KLP AksjeEuropa. In addition to that, ISEQ 20 is 1.38 times more volatile than KLP AksjeEuropa Indeks. It trades about -0.13 of its total potential returns per unit of risk. KLP AksjeEuropa Indeks is currently generating about -0.09 per unit of volatility. If you would invest  184,685  in KLP AksjeEuropa Indeks on September 2, 2024 and sell it today you would lose (2,286) from holding KLP AksjeEuropa Indeks or give up 1.24% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy90.91%
ValuesDaily Returns

ISEQ 20 Price  vs.  KLP AksjeEuropa Indeks

 Performance 
       Timeline  

ISEQ 20 and KLP AksjeEuropa Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with ISEQ 20 and KLP AksjeEuropa

The main advantage of trading using opposite ISEQ 20 and KLP AksjeEuropa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ISEQ 20 position performs unexpectedly, KLP AksjeEuropa 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 KLP AksjeEuropa will offset losses from the drop in KLP AksjeEuropa's long position.
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The idea behind ISEQ 20 Price and KLP AksjeEuropa Indeks 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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