Correlation Between Cboe UK and Marks

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

By analyzing existing cross correlation between Cboe UK Consumer and Marks and Spencer, you can compare the effects of market volatilities on Cboe UK and Marks 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 Cboe UK with a short position of Marks. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cboe UK and Marks.

Diversification Opportunities for Cboe UK and Marks

0.41

Correlation Coefficient

Cboe UK  Marks

Very weak diversification

The 3 months correlation between Cboe and Marks is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Cboe UK Consumer and Marks and Spencer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marks and Spencer and Cboe UK 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 Cboe UK Consumer are associated (or correlated) with Marks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marks and Spencer has no effect on the direction of Cboe UK i.e., Cboe UK and Marks go up and down completely randomly.

Pair Corralation between Cboe UK and Marks

Assuming the 90 days trading horizon Cboe UK is expected to generate 2.43 times less return on investment than Marks. But when comparing it to its historical volatility, Cboe UK Consumer is 1.76 times less risky than Marks. It trades about 0.05 of its potential returns per unit of risk. Marks and Spencer is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  37,093  in Marks and Spencer on September 22, 2024 and sell it today you would earn a total of  847.00  from holding Marks and Spencer or generate 2.28% return on investment over 90 days.

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

Cboe UK Consumer  vs.  Marks and Spencer

Pair Trading with Cboe UK and Marks

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

The idea behind Cboe UK Consumer and Marks and Spencer 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.