Correlation Between Cboe UK and Integrated Diagnostics

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

Diversification Opportunities for Cboe UK and Integrated Diagnostics

0.05

Correlation Coefficient

Cboe UK  Integrated Diagnostics

Significant diversification

The 3 months correlation between Cboe and Integrated is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Cboe UK Consumer and Integrated Diagnostics Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Integrated Diagnostics 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 Integrated Diagnostics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Integrated Diagnostics has no effect on the direction of Cboe UK i.e., Cboe UK and Integrated Diagnostics go up and down completely randomly.

Pair Corralation between Cboe UK and Integrated Diagnostics

Assuming the 90 days trading horizon Cboe UK is expected to generate 2.3 times less return on investment than Integrated Diagnostics. But when comparing it to its historical volatility, Cboe UK Consumer is 3.95 times less risky than Integrated Diagnostics. It trades about 0.14 of its potential returns per unit of risk. Integrated Diagnostics Holdings is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  31.00  in Integrated Diagnostics Holdings on September 24, 2024 and sell it today you would earn a total of  14.00  from holding Integrated Diagnostics Holdings or generate 45.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.25%
Values	Daily Returns

Cboe UK Consumer  vs.  Integrated Diagnostics Holding

Pair Trading with Cboe UK and Integrated Diagnostics

The main advantage of trading using opposite Cboe UK and Integrated Diagnostics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cboe UK position performs unexpectedly, Integrated Diagnostics 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 Integrated Diagnostics will offset losses from the drop in Integrated Diagnostics' long position.

The idea behind Cboe UK Consumer and Integrated Diagnostics Holdings 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.