Correlation Between SPBVL Peru and ICEX Main

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

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

Diversification Opportunities for SPBVL Peru and ICEX Main

-0.09

Correlation Coefficient

SPBVL Peru  ICEX Main

Good diversification

The 3 months correlation between SPBVL and ICEX is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding SPBVL Peru General and ICEX Main in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ICEX Main and SPBVL Peru 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 SPBVL Peru General 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 SPBVL Peru i.e., SPBVL Peru and ICEX Main go up and down completely randomly.

Pair Corralation between SPBVL Peru and ICEX Main

Assuming the 90 days trading horizon SPBVL Peru General is expected to generate 0.77 times more return on investment than ICEX Main. However, SPBVL Peru General is 1.29 times less risky than ICEX Main. It trades about -0.09 of its potential returns per unit of risk. ICEX Main is currently generating about -0.25 per unit of risk. If you would invest  2,950,073  in SPBVL Peru General on January 9, 2025 and sell it today you would lose (165,988) from holding SPBVL Peru General or give up 5.63% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

SPBVL Peru General  vs.  ICEX Main

Pair Trading with SPBVL Peru and ICEX Main

The main advantage of trading using opposite SPBVL Peru and ICEX Main positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPBVL Peru 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 SPBVL Peru General 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.