Correlation Between Stock Exchange and CROBEX

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

By analyzing existing cross correlation between Stock Exchange Of and CROBEX, you can compare the effects of market volatilities on Stock Exchange and CROBEX 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 Stock Exchange with a short position of CROBEX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stock Exchange and CROBEX.

Diversification Opportunities for Stock Exchange and CROBEX

0.28

Correlation Coefficient

Stock Exchange  CROBEX

Modest diversification

The 3 months correlation between Stock and CROBEX is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Stock Exchange Of and CROBEX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CROBEX and Stock Exchange 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 Stock Exchange Of are associated (or correlated) with CROBEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CROBEX has no effect on the direction of Stock Exchange i.e., Stock Exchange and CROBEX go up and down completely randomly.

Pair Corralation between Stock Exchange and CROBEX

Assuming the 90 days trading horizon Stock Exchange is expected to generate 1.71 times less return on investment than CROBEX. In addition to that, Stock Exchange is 1.8 times more volatile than CROBEX. It trades about 0.08 of its total potential returns per unit of risk. CROBEX is currently generating about 0.23 per unit of volatility. If you would invest  280,790  in CROBEX on September 1, 2024 and sell it today you would earn a total of  35,374  from holding CROBEX or generate 12.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.64%
Values	Daily Returns

Stock Exchange Of  vs.  CROBEX

Pair Trading with Stock Exchange and CROBEX

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

The idea behind Stock Exchange Of and CROBEX 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.