Correlation Between Themes Transatlantic and Select STOXX

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

By analyzing existing cross correlation between Themes Transatlantic Defense and Select STOXX Europe, you can compare the effects of market volatilities on Themes Transatlantic and Select STOXX 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 Themes Transatlantic with a short position of Select STOXX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Themes Transatlantic and Select STOXX.

Diversification Opportunities for Themes Transatlantic and Select STOXX

0.97

Correlation Coefficient

Themes Transatlantic  Select STOXX

Almost no diversification

The 3 months correlation between Themes and Select is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Themes Transatlantic Defense and Select STOXX Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select STOXX Europe and Themes Transatlantic 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 Themes Transatlantic Defense are associated (or correlated) with Select STOXX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select STOXX Europe has no effect on the direction of Themes Transatlantic i.e., Themes Transatlantic and Select STOXX go up and down completely randomly.

Pair Corralation between Themes Transatlantic and Select STOXX

Given the investment horizon of 90 days Themes Transatlantic is expected to generate 1.18 times less return on investment than Select STOXX. But when comparing it to its historical volatility, Themes Transatlantic Defense is 1.13 times less risky than Select STOXX. It trades about 0.13 of its potential returns per unit of risk. Select STOXX Europe is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,386  in Select STOXX Europe on March 1, 2025 and sell it today you would earn a total of  686.00  from holding Select STOXX Europe or generate 20.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.41%
Values	Daily Returns

Themes Transatlantic Defense  vs.  Select STOXX Europe

Themes Transatlantic

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Themes Transatlantic Defense are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Themes Transatlantic displayed solid returns over the last few months and may actually be approaching a breakup point.

Select STOXX Europe

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Select STOXX Europe are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Select STOXX exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Themes Transatlantic and Select STOXX

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

The idea behind Themes Transatlantic Defense and Select STOXX Europe 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.