Correlation Between EM and EMC2
Can any of the company-specific risk be diversified away by investing in both EM and EMC2 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 EM and EMC2 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EM and EMC2, you can compare the effects of market volatilities on EM and EMC2 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 EM with a short position of EMC2. Check out your portfolio center. Please also check ongoing floating volatility patterns of EM and EMC2.
Diversification Opportunities for EM and EMC2
Pay attention - limited upside
The 3 months correlation between EM and EMC2 is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding EM and EMC2 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMC2 and EM 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 EM are associated (or correlated) with EMC2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMC2 has no effect on the direction of EM i.e., EM and EMC2 go up and down completely randomly.
Pair Corralation between EM and EMC2
If you would invest 0.03 in EMC2 on September 2, 2024 and sell it today you would earn a total of 0.01 from holding EMC2 or generate 38.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
EM vs. EMC2
Performance |
| Timeline |
| EM |
| EMC2 |
EM and EMC2 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EM and EMC2
The main advantage of trading using opposite EM and EMC2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EM position performs unexpectedly, EMC2 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 EMC2 will offset losses from the drop in EMC2's long position.The idea behind EM and EMC2 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.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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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