Correlation Between Rmb International and Rmb Smid

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

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

Diversification Opportunities for Rmb International and Rmb Smid

-0.71

Correlation Coefficient

Rmb International  Rmb Smid

Pay attention - limited upside

The 3 months correlation between Rmb and Rmb is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Rmb International Fund and Rmb Smid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rmb Smid Cap and Rmb International 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 Rmb International Fund are associated (or correlated) with Rmb Smid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rmb Smid Cap has no effect on the direction of Rmb International i.e., Rmb International and Rmb Smid go up and down completely randomly.

Pair Corralation between Rmb International and Rmb Smid

Assuming the 90 days horizon Rmb International is expected to generate 1.93 times less return on investment than Rmb Smid. But when comparing it to its historical volatility, Rmb International Fund is 1.35 times less risky than Rmb Smid. It trades about 0.04 of its potential returns per unit of risk. Rmb Smid Cap is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,211  in Rmb Smid Cap on September 12, 2024 and sell it today you would earn a total of  231.00  from holding Rmb Smid Cap or generate 19.08% return on investment over 90 days.

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

Rmb International Fund  vs.  Rmb Smid Cap

Rmb International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Rmb Smid Cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rmb Smid Cap are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Rmb Smid may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Rmb International and Rmb Smid

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

The idea behind Rmb International Fund and Rmb Smid Cap 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.