Correlation Between OShares Small and OShares Europe

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

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

Diversification Opportunities for OShares Small and OShares Europe

-0.67

Correlation Coefficient

OShares Small  OShares Europe

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 Small Cap Quality and OShares Europe Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OShares Europe Quality and OShares 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 OShares Small Cap Quality are associated (or correlated) with OShares Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OShares Europe Quality has no effect on the direction of OShares Small i.e., OShares Small and OShares Europe go up and down completely randomly.

Pair Corralation between OShares Small and OShares Europe

Given the investment horizon of 90 days OShares Small Cap Quality is expected to generate 1.04 times more return on investment than OShares Europe. However, OShares Small is 1.04 times more volatile than OShares Europe Quality. It trades about 0.1 of its potential returns per unit of risk. OShares Europe Quality is currently generating about -0.14 per unit of risk. If you would invest  4,370  in OShares Small Cap Quality on September 14, 2024 and sell it today you would earn a total of  246.00  from holding OShares Small Cap Quality or generate 5.63% return on investment over 90 days.

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

OShares Small Cap Quality  vs.  OShares Europe Quality

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.

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.

Pair Trading with OShares Small and OShares Europe

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

The idea behind OShares Small Cap Quality and OShares Europe 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.