Correlation Between Avantis Small and Avantis Emerging

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

By analyzing existing cross correlation between Avantis Small Cap and Avantis Emerging Markets, you can compare the effects of market volatilities on Avantis Small and Avantis Emerging 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 Avantis Small with a short position of Avantis Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avantis Small and Avantis Emerging.

Diversification Opportunities for Avantis Small and Avantis Emerging

-0.35

Correlation Coefficient

Avantis Small  Avantis Emerging

Very good diversification

The 3 months correlation between Avantis and Avantis is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Avantis Small Cap and Avantis Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avantis Emerging Markets and Avantis Small 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 Avantis Small Cap are associated (or correlated) with Avantis Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avantis Emerging Markets has no effect on the direction of Avantis Small i.e., Avantis Small and Avantis Emerging go up and down completely randomly.

Pair Corralation between Avantis Small and Avantis Emerging

Given the investment horizon of 90 days Avantis Small Cap is expected to generate 1.17 times more return on investment than Avantis Emerging. However, Avantis Small is 1.17 times more volatile than Avantis Emerging Markets. It trades about 0.14 of its potential returns per unit of risk. Avantis Emerging Markets is currently generating about 0.03 per unit of risk. If you would invest  9,271  in Avantis Small Cap on September 13, 2024 and sell it today you would earn a total of  1,105  from holding Avantis Small Cap or generate 11.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Avantis Small Cap  vs.  Avantis Emerging Markets

Avantis Small Cap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Avantis Small Cap are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Avantis Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Avantis Emerging Markets

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Avantis Emerging Markets are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Avantis Emerging is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Avantis Small and Avantis Emerging

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

The idea behind Avantis Small Cap and Avantis Emerging Markets 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.