Correlation Between Cboe UK and AFC Energy

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Can any of the company-specific risk be diversified away by investing in both Cboe UK and AFC Energy 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 AFC Energy 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 AFC Energy plc, you can compare the effects of market volatilities on Cboe UK and AFC Energy 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 AFC Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cboe UK and AFC Energy.

Diversification Opportunities for Cboe UK and AFC Energy

0.75
  Correlation Coefficient

Poor diversification

The 3 months correlation between Cboe and AFC is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Cboe UK Consumer and AFC Energy plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AFC Energy plc 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 AFC Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AFC Energy plc has no effect on the direction of Cboe UK i.e., Cboe UK and AFC Energy go up and down completely randomly.
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Pair Corralation between Cboe UK and AFC Energy

Assuming the 90 days trading horizon Cboe UK is expected to generate 6.05 times less return on investment than AFC Energy. But when comparing it to its historical volatility, Cboe UK Consumer is 10.33 times less risky than AFC Energy. It trades about 0.28 of its potential returns per unit of risk. AFC Energy plc is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  550.00  in AFC Energy plc on April 20, 2025 and sell it today you would earn a total of  522.00  from holding AFC Energy plc or generate 94.91% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.38%
ValuesDaily Returns

Cboe UK Consumer  vs.  AFC Energy plc

 Performance 
       Timeline  

Cboe UK and AFC Energy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Cboe UK and AFC Energy

The main advantage of trading using opposite Cboe UK and AFC Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cboe UK position performs unexpectedly, AFC Energy 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 AFC Energy will offset losses from the drop in AFC Energy's long position.
The idea behind Cboe UK Consumer and AFC Energy plc 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.

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