Correlation Between BEL Small and ICEX Main

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

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

Diversification Opportunities for BEL Small and ICEX Main

-0.42

Correlation Coefficient

BEL Small  ICEX Main

Very good diversification

The 3 months correlation between BEL and ICEX is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding BEL Small and ICEX Main in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ICEX Main and BEL Small 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 BEL Small are associated (or correlated) with ICEX Main. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ICEX Main has no effect on the direction of BEL Small i.e., BEL Small and ICEX Main go up and down completely randomly.

Pair Corralation between BEL Small and ICEX Main

Assuming the 90 days trading horizon BEL Small is expected to under-perform the ICEX Main. In addition to that, BEL Small is 1.14 times more volatile than ICEX Main. It trades about -0.19 of its total potential returns per unit of risk. ICEX Main is currently generating about 0.17 per unit of volatility. If you would invest  204,496  in ICEX Main on February 4, 2024 and sell it today you would earn a total of  5,439  from holding ICEX Main or generate 2.66% return on investment over 90 days.

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

BEL Small  vs.  ICEX Main

Pair Trading with BEL Small and ICEX Main

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

The idea behind BEL Small and ICEX Main 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.