Correlation Between Ultra Short and China Emerging

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

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

Diversification Opportunities for Ultra Short and China Emerging

-0.35

Correlation Coefficient

Ultra Short  China Emerging

Very good diversification

The 3 months correlation between Ultra and China is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Short Term Bond 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 Ultra Short 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 Ultra Short Term Bond 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 Ultra Short i.e., Ultra Short and China Emerging go up and down completely randomly.

Pair Corralation between Ultra Short and China Emerging

Assuming the 90 days horizon Ultra Short Term Bond is expected to generate 0.16 times more return on investment than China Emerging. However, Ultra Short Term Bond is 6.18 times less risky than China Emerging. It trades about -0.08 of its potential returns per unit of risk. China Emerging Leaders is currently generating about -0.2 per unit of risk. If you would invest  1,008  in Ultra Short Term Bond on September 25, 2024 and sell it today you would lose (1.00) from holding Ultra Short Term Bond or give up 0.1% of portfolio value over 90 days.

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

Ultra Short Term Bond  vs.  China Emerging Leaders

Ultra Short Term

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Short Term Bond are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Ultra Short 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 Ultra Short and China Emerging

The main advantage of trading using opposite Ultra Short and China Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ultra Short 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 Ultra Short Term Bond 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.