Can any of the company-specific risk be diversified away by investing in both SCOR PK and Global Real 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 SCOR PK and Global Real into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SCOR PK and Global Real Estate, you can compare the effects of market volatilities on SCOR PK and Global Real 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 SCOR PK with a short position of Global Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of SCOR PK and Global Real.
Diversification Opportunities for SCOR PK and Global Real
The 3 months correlation between SCOR and Global is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding SCOR PK and GLOBAL REAL ESTATE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Real Estate and SCOR PK 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 SCOR PK are associated (or correlated) with Global Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Real Estate has no effect on the direction of SCOR PK i.e., SCOR PK and Global Real go up and down completely randomly.
Assuming the 90 days horizon SCOR PK is expected to generate 2.52 times more return on investment than Global Real. However, SCOR PK is 2.52 times more volatile than Global Real Estate. It trades about 0.03 of its potential returns per unit of risk. Global Real Estate is currently generating about -0.03 per unit of risk. If you would invest 259.00 in SCOR PK on September 1, 2023 and sell it today you would earn a total of 65.00 from holding SCOR PK or generate 25.1% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in SCOR PK are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, SCOR PK may actually be approaching a critical reversion point that can send shares even higher in December 2023.
Over the last 90 days Global Real Estate has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Global Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
The main advantage of trading using opposite SCOR PK and Global Real positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SCOR PK position performs unexpectedly, Global Real 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 Global Real will offset losses from the drop in Global Real's long position.
The idea behind SCOR PK and Global Real Estate 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.
Check out your portfolio center.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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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