Correlation Between Touchstone Small and Ultrashort Emerging

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

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

Diversification Opportunities for Touchstone Small and Ultrashort Emerging

0.56

Correlation Coefficient

Touchstone Small  Ultrashort Emerging

Very weak diversification

The 3 months correlation between Touchstone and Ultrashort is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Touchstone Small Cap and Ultrashort Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultrashort Emerging and Touchstone 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 Touchstone Small Cap are associated (or correlated) with Ultrashort Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultrashort Emerging has no effect on the direction of Touchstone Small i.e., Touchstone Small and Ultrashort Emerging go up and down completely randomly.

Pair Corralation between Touchstone Small and Ultrashort Emerging

Assuming the 90 days horizon Touchstone Small is expected to generate 9.23 times less return on investment than Ultrashort Emerging. But when comparing it to its historical volatility, Touchstone Small Cap is 2.0 times less risky than Ultrashort Emerging. It trades about 0.02 of its potential returns per unit of risk. Ultrashort Emerging Markets is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,173  in Ultrashort Emerging Markets on September 27, 2024 and sell it today you would earn a total of  153.00  from holding Ultrashort Emerging Markets or generate 13.04% return on investment over 90 days.

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

Touchstone Small Cap  vs.  Ultrashort Emerging Markets

Touchstone Small Cap

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Touchstone Small Cap are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Touchstone Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ultrashort Emerging

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ultrashort Emerging Markets are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ultrashort Emerging showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Touchstone Small and Ultrashort Emerging

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

The idea behind Touchstone Small Cap and Ultrashort Emerging Markets 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.