Correlation Between Short Term and China Emerging

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

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

Diversification Opportunities for Short Term and China Emerging

-0.43

Correlation Coefficient

Short Term  China Emerging

Very good diversification

The 3 months correlation between Short and China is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Fund A and China Emerging Leaders in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Emerging Leaders and Short Term 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 Short Term Fund A are associated (or correlated) with China Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Emerging Leaders has no effect on the direction of Short Term i.e., Short Term and China Emerging go up and down completely randomly.

Pair Corralation between Short Term and China Emerging

Assuming the 90 days horizon Short Term Fund A is expected to generate 0.28 times more return on investment than China Emerging. However, Short Term Fund A is 3.51 times less risky than China Emerging. It trades about 0.26 of its potential returns per unit of risk. China Emerging Leaders is currently generating about -0.13 per unit of risk. If you would invest  953.00  in Short Term Fund A on September 25, 2024 and sell it today you would earn a total of  15.00  from holding Short Term Fund A or generate 1.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Short Term Fund A  vs.  China Emerging Leaders

Short Term Fund

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Short Term Fund A are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Short Term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Emerging Leaders

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Short Term and China Emerging

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

The idea behind Short Term Fund A and China Emerging Leaders 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.