Correlation Between Numeraire and Worldwide Asset

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

By analyzing existing cross correlation between Numeraire and Worldwide Asset eXchange, you can compare the effects of market volatilities on Numeraire and Worldwide Asset 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 Numeraire with a short position of Worldwide Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Numeraire and Worldwide Asset.

Diversification Opportunities for Numeraire and Worldwide Asset

0.91

Correlation Coefficient

Numeraire  Worldwide Asset

Almost no diversification

The 3 months correlation between Numeraire and Worldwide is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Numeraire and Worldwide Asset eXchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Worldwide Asset eXchange and Numeraire 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 Numeraire are associated (or correlated) with Worldwide Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Worldwide Asset eXchange has no effect on the direction of Numeraire i.e., Numeraire and Worldwide Asset go up and down completely randomly.

Pair Corralation between Numeraire and Worldwide Asset

Assuming the 90 days trading horizon Numeraire is expected to generate 1.35 times less return on investment than Worldwide Asset. But when comparing it to its historical volatility, Numeraire is 1.08 times less risky than Worldwide Asset. It trades about 0.17 of its potential returns per unit of risk. Worldwide Asset eXchange is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2.81  in Worldwide Asset eXchange on September 2, 2024 and sell it today you would earn a total of  2.78  from holding Worldwide Asset eXchange or generate 98.93% return on investment over 90 days.

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

Numeraire  vs.  Worldwide Asset eXchange

Numeraire

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Numeraire are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Numeraire exhibited solid returns over the last few months and may actually be approaching a breakup point.

Worldwide Asset eXchange

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Worldwide Asset eXchange are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Worldwide Asset exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Numeraire and Worldwide Asset

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

The idea behind Numeraire and Worldwide Asset eXchange 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.