Correlation Between Short Term and ESSEX

Can any of the company-specific risk be diversified away by investing in both Short Term and ESSEX 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 ESSEX 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 ESSEX PORTFOLIO L, you can compare the effects of market volatilities on Short Term and ESSEX 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 ESSEX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Term and ESSEX.

Diversification Opportunities for Short Term and ESSEX

-0.6

Correlation Coefficient

Short Term  ESSEX

Excellent diversification

The 3 months correlation between Short and ESSEX is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Fund A and ESSEX PORTFOLIO L in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESSEX PORTFOLIO L 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 ESSEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESSEX PORTFOLIO L has no effect on the direction of Short Term i.e., Short Term and ESSEX go up and down completely randomly.

Pair Corralation between Short Term and ESSEX

Assuming the 90 days horizon Short Term Fund A is expected to generate 0.3 times more return on investment than ESSEX. However, Short Term Fund A is 3.33 times less risky than ESSEX. It trades about 0.26 of its potential returns per unit of risk. ESSEX PORTFOLIO L is currently generating about -0.01 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	Weak
Accuracy	90.48%
Values	Daily Returns

Short Term Fund A  vs.  ESSEX PORTFOLIO L

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.

ESSEX PORTFOLIO L

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ESSEX PORTFOLIO L has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ESSEX is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Short Term and ESSEX

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

The idea behind Short Term Fund A and ESSEX PORTFOLIO L 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.