Correlation Between OShares Europe and OShares Small

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

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

Diversification Opportunities for OShares Europe and OShares Small

-0.67

Correlation Coefficient

OShares Europe  OShares Small

Excellent diversification

The 3 months correlation between OShares and OShares is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding OShares Europe Quality and OShares Small Cap Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OShares Small Cap and OShares Europe 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 OShares Europe Quality are associated (or correlated) with OShares Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OShares Small Cap has no effect on the direction of OShares Europe i.e., OShares Europe and OShares Small go up and down completely randomly.

Pair Corralation between OShares Europe and OShares Small

Given the investment horizon of 90 days OShares Europe Quality is expected to generate 0.8 times more return on investment than OShares Small. However, OShares Europe Quality is 1.24 times less risky than OShares Small. It trades about 0.12 of its potential returns per unit of risk. OShares Small Cap Quality is currently generating about 0.0 per unit of risk. If you would invest  2,880  in OShares Europe Quality on September 14, 2024 and sell it today you would earn a total of  42.00  from holding OShares Europe Quality or generate 1.46% return on investment over 90 days.

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

OShares Europe Quality  vs.  OShares Small Cap Quality

OShares Europe Quality

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OShares Europe Quality has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unfluctuating performance, the Etf's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

OShares Small Cap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in OShares Small Cap Quality are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, OShares Small is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with OShares Europe and OShares Small

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

The idea behind OShares Europe Quality and OShares Small Cap Quality 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.