Correlation Between FlexShares International and ALPS Emerging

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

By analyzing existing cross correlation between FlexShares International Quality and ALPS Emerging Sector, you can compare the effects of market volatilities on FlexShares International and ALPS 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 FlexShares International with a short position of ALPS Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares International and ALPS Emerging.

Diversification Opportunities for FlexShares International and ALPS Emerging

0.95

Correlation Coefficient

FlexShares International  ALPS Emerging

Almost no diversification

The 3 months correlation between FlexShares and ALPS is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares International Quali and ALPS Emerging Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALPS Emerging Sector and FlexShares International 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 FlexShares International Quality are associated (or correlated) with ALPS Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALPS Emerging Sector has no effect on the direction of FlexShares International i.e., FlexShares International and ALPS Emerging go up and down completely randomly.

Pair Corralation between FlexShares International and ALPS Emerging

Given the investment horizon of 90 days FlexShares International Quality is expected to under-perform the ALPS Emerging. In addition to that, FlexShares International is 1.19 times more volatile than ALPS Emerging Sector. It trades about 0.0 of its total potential returns per unit of risk. ALPS Emerging Sector is currently generating about 0.0 per unit of volatility. If you would invest  2,152  in ALPS Emerging Sector on September 3, 2024 and sell it today you would lose (11.00) from holding ALPS Emerging Sector or give up 0.51% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

FlexShares International Quali  vs.  ALPS Emerging Sector

FlexShares International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares International Quality has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, FlexShares International is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

ALPS Emerging Sector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALPS Emerging Sector has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ALPS Emerging is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with FlexShares International and ALPS Emerging

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

The idea behind FlexShares International Quality and ALPS Emerging Sector 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.