Correlation Between Defense and Emerging Europe

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

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

Diversification Opportunities for Defense and Emerging Europe

-0.03

Correlation Coefficient

Defense  Emerging Europe

Good diversification

The 3 months correlation between Defense and Emerging is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Defense And Aerospace and Emerging Europe Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Europe and Defense 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 Defense And Aerospace are associated (or correlated) with Emerging Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Europe has no effect on the direction of Defense i.e., Defense and Emerging Europe go up and down completely randomly.

Pair Corralation between Defense and Emerging Europe

If you would invest  1,948  in Defense And Aerospace on September 19, 2024 and sell it today you would earn a total of  22.00  from holding Defense And Aerospace or generate 1.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	4.76%
Values	Daily Returns

Defense And Aerospace  vs.  Emerging Europe Fund

Defense And Aerospace

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Defense And Aerospace are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Defense is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Emerging Europe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Emerging Europe Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Emerging Europe is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Defense and Emerging Europe

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

The idea behind Defense And Aerospace and Emerging Europe Fund 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.