Correlation Between IBEX 35 and SPBVL Peru

Can any of the company-specific risk be diversified away by investing in both IBEX 35 and SPBVL Peru 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 SPBVL Peru 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 SPBVL Peru General, you can compare the effects of market volatilities on IBEX 35 and SPBVL Peru 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 SPBVL Peru. Check out your portfolio center. Please also check ongoing floating volatility patterns of IBEX 35 and SPBVL Peru.

Diversification Opportunities for IBEX 35 and SPBVL Peru

0.61

Correlation Coefficient

IBEX 35  SPBVL Peru

Poor diversification

The 3 months correlation between IBEX and SPBVL is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding IBEX 35 Index and SPBVL Peru General in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPBVL Peru General 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 SPBVL Peru. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPBVL Peru General has no effect on the direction of IBEX 35 i.e., IBEX 35 and SPBVL Peru go up and down completely randomly.

Pair Corralation between IBEX 35 and SPBVL Peru

Assuming the 90 days trading horizon IBEX 35 is expected to generate 2.56 times less return on investment than SPBVL Peru. In addition to that, IBEX 35 is 1.0 times more volatile than SPBVL Peru General. It trades about 0.03 of its total potential returns per unit of risk. SPBVL Peru General is currently generating about 0.09 per unit of volatility. If you would invest  2,872,112  in SPBVL Peru General on August 30, 2024 and sell it today you would earn a total of  119,561  from holding SPBVL Peru General or generate 4.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.31%
Values	Daily Returns

IBEX 35 Index  vs.  SPBVL Peru General

Pair Trading with IBEX 35 and SPBVL Peru

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

The idea behind IBEX 35 Index and SPBVL Peru General 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.