Correlation Between Causeway International and Causeway Emerging
Can any of the company-specific risk be diversified away by investing in both Causeway International and Causeway 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 Causeway International and Causeway Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Causeway International Small and Causeway Emerging Markets, you can compare the effects of market volatilities on Causeway International and Causeway 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 Causeway International with a short position of Causeway Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Causeway International and Causeway Emerging.
Diversification Opportunities for Causeway International and Causeway Emerging
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Causeway and Causeway is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Causeway International Small and Causeway Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Causeway Emerging Markets and Causeway 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 Causeway International Small are associated (or correlated) with Causeway Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Causeway Emerging Markets has no effect on the direction of Causeway International i.e., Causeway International and Causeway Emerging go up and down completely randomly.
Pair Corralation between Causeway International and Causeway Emerging
Assuming the 90 days horizon Causeway International Small is expected to generate 0.73 times more return on investment than Causeway Emerging. However, Causeway International Small is 1.38 times less risky than Causeway Emerging. It trades about -0.03 of its potential returns per unit of risk. Causeway Emerging Markets is currently generating about -0.19 per unit of risk. If you would invest 1,517 in Causeway International Small on August 26, 2024 and sell it today you would lose (8.00) from holding Causeway International Small or give up 0.53% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Causeway International Small vs. Causeway Emerging Markets
Performance |
| Timeline |
| Causeway International |
| Causeway Emerging Markets |
Causeway International and Causeway Emerging Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Causeway International and Causeway Emerging
The main advantage of trading using opposite Causeway International and Causeway Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Causeway International position performs unexpectedly, Causeway 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 Causeway Emerging will offset losses from the drop in Causeway Emerging's long position.The idea behind Causeway International Small and Causeway 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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Check out your portfolio center.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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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