Correlation Between ISEQ 20 and Oslo Exchange

Can any of the company-specific risk be diversified away by investing in both ISEQ 20 and Oslo Exchange 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 Oslo Exchange 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 Oslo Exchange Mutual, you can compare the effects of market volatilities on ISEQ 20 and Oslo Exchange 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 Oslo Exchange. Check out your portfolio center. Please also check ongoing floating volatility patterns of ISEQ 20 and Oslo Exchange.

Diversification Opportunities for ISEQ 20 and Oslo Exchange

-0.3

Correlation Coefficient

ISEQ 20  Oslo Exchange

Very good diversification

The 3 months correlation between ISEQ and Oslo is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding ISEQ 20 Price and Oslo Exchange Mutual in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oslo Exchange Mutual 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 Oslo Exchange. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oslo Exchange Mutual has no effect on the direction of ISEQ 20 i.e., ISEQ 20 and Oslo Exchange go up and down completely randomly.

Pair Corralation between ISEQ 20 and Oslo Exchange

Assuming the 90 days trading horizon ISEQ 20 Price is expected to under-perform the Oslo Exchange. In addition to that, ISEQ 20 is 1.47 times more volatile than Oslo Exchange Mutual. It trades about -0.04 of its total potential returns per unit of risk. Oslo Exchange Mutual is currently generating about 0.05 per unit of volatility. If you would invest  137,979  in Oslo Exchange Mutual on September 1, 2024 and sell it today you would earn a total of  2,983  from holding Oslo Exchange Mutual or generate 2.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

ISEQ 20 Price  vs.  Oslo Exchange Mutual

Pair Trading with ISEQ 20 and Oslo Exchange

The main advantage of trading using opposite ISEQ 20 and Oslo Exchange positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ISEQ 20 position performs unexpectedly, Oslo Exchange 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 Oslo Exchange will offset losses from the drop in Oslo Exchange's long position.

The idea behind ISEQ 20 Price and Oslo Exchange Mutual 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.