Correlation Between IBEX 35 and Merlin Properties

Can any of the company-specific risk be diversified away by investing in both IBEX 35 and Merlin Properties 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 IBEX 35 and Merlin Properties into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IBEX 35 Index and Merlin Properties SOCIMI, you can compare the effects of market volatilities on IBEX 35 and Merlin Properties 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 IBEX 35 with a short position of Merlin Properties. Check out your portfolio center. Please also check ongoing floating volatility patterns of IBEX 35 and Merlin Properties.

Diversification Opportunities for IBEX 35 and Merlin Properties

0.65

Correlation Coefficient

IBEX 35  Merlin Properties

Poor diversification

The 3 months correlation between IBEX and Merlin is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding IBEX 35 Index and Merlin Properties SOCIMI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merlin Properties SOCIMI and IBEX 35 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 IBEX 35 Index are associated (or correlated) with Merlin Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merlin Properties SOCIMI has no effect on the direction of IBEX 35 i.e., IBEX 35 and Merlin Properties go up and down completely randomly.

Pair Corralation between IBEX 35 and Merlin Properties

Assuming the 90 days trading horizon IBEX 35 is expected to generate 11.25 times less return on investment than Merlin Properties. But when comparing it to its historical volatility, IBEX 35 Index is 1.14 times less risky than Merlin Properties. It trades about 0.04 of its potential returns per unit of risk. Merlin Properties SOCIMI is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  969.00  in Merlin Properties SOCIMI on January 29, 2024 and sell it today you would earn a total of  87.00  from holding Merlin Properties SOCIMI or generate 8.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

IBEX 35 Index  vs.  Merlin Properties SOCIMI

Pair Trading with IBEX 35 and Merlin Properties

The main advantage of trading using opposite IBEX 35 and Merlin Properties positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IBEX 35 position performs unexpectedly, Merlin Properties 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 Merlin Properties will offset losses from the drop in Merlin Properties' long position.

The idea behind IBEX 35 Index and Merlin Properties SOCIMI 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.