Correlation Between IBEX 35 and SBF 120

Can any of the company-specific risk be diversified away by investing in both IBEX 35 and SBF 120 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 IBEX 35 and SBF 120 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IBEX 35 Index and SBF 120, you can compare the effects of market volatilities on IBEX 35 and SBF 120 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 IBEX 35 with a short position of SBF 120. Check out your portfolio center. Please also check ongoing floating volatility patterns of IBEX 35 and SBF 120.

Diversification Opportunities for IBEX 35 and SBF 120

0.39

Correlation Coefficient

IBEX 35  SBF 120

Weak diversification

The 3 months correlation between IBEX and SBF is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding IBEX 35 Index and SBF 120 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBF 120 and IBEX 35 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 IBEX 35 Index are associated (or correlated) with SBF 120. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBF 120 has no effect on the direction of IBEX 35 i.e., IBEX 35 and SBF 120 go up and down completely randomly.

Pair Corralation between IBEX 35 and SBF 120

Assuming the 90 days trading horizon IBEX 35 Index is expected to generate 0.89 times more return on investment than SBF 120. However, IBEX 35 Index is 1.12 times less risky than SBF 120. It trades about 0.05 of its potential returns per unit of risk. SBF 120 is currently generating about -0.09 per unit of risk. If you would invest  1,139,530  in IBEX 35 Index on September 1, 2024 and sell it today you would earn a total of  24,600  from holding IBEX 35 Index or generate 2.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.48%
Values	Daily Returns

IBEX 35 Index  vs.  SBF 120

Pair Trading with IBEX 35 and SBF 120

The main advantage of trading using opposite IBEX 35 and SBF 120 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IBEX 35 position performs unexpectedly, SBF 120 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 SBF 120 will offset losses from the drop in SBF 120's long position.

The idea behind IBEX 35 Index and SBF 120 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..