Correlation Between WIG 30 and New Tech

Can any of the company-specific risk be diversified away by investing in both WIG 30 and New Tech 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 WIG 30 and New Tech into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between WIG 30 and New Tech Capital, you can compare the effects of market volatilities on WIG 30 and New Tech 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 WIG 30 with a short position of New Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of WIG 30 and New Tech.

Diversification Opportunities for WIG 30 and New Tech

0.3

Correlation Coefficient

WIG 30  New Tech

Weak diversification

The 3 months correlation between WIG and New is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding WIG 30 and New Tech Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Tech Capital and WIG 30 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 WIG 30 are associated (or correlated) with New Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Tech Capital has no effect on the direction of WIG 30 i.e., WIG 30 and New Tech go up and down completely randomly.

Pair Corralation between WIG 30 and New Tech

Assuming the 90 days trading horizon WIG 30 is expected to generate 0.2 times more return on investment than New Tech. However, WIG 30 is 4.95 times less risky than New Tech. It trades about 0.01 of its potential returns per unit of risk. New Tech Capital is currently generating about -0.16 per unit of risk. If you would invest  289,469  in WIG 30 on September 14, 2024 and sell it today you would earn a total of  511.00  from holding WIG 30 or generate 0.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

WIG 30  vs.  New Tech Capital

Pair Trading with WIG 30 and New Tech

The main advantage of trading using opposite WIG 30 and New Tech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WIG 30 position performs unexpectedly, New Tech 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 New Tech will offset losses from the drop in New Tech's long position.

The idea behind WIG 30 and New Tech Capital 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.