Correlation Between EM and NAS
Can any of the company-specific risk be diversified away by investing in both EM and NAS 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 NAS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EM and NAS, you can compare the effects of market volatilities on EM and NAS 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 NAS. Check out your portfolio center. Please also check ongoing floating volatility patterns of EM and NAS.
Diversification Opportunities for EM and NAS
Pay attention - limited upside
The 3 months correlation between EM and NAS is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding EM and NAS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NAS 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 NAS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NAS has no effect on the direction of EM i.e., EM and NAS go up and down completely randomly.
Pair Corralation between EM and NAS
Assuming the 90 days horizon EM is expected to under-perform the NAS. In addition to that, EM is 1.15 times more volatile than NAS. It trades about -0.05 of its total potential returns per unit of risk. NAS is currently generating about -0.01 per unit of volatility. If you would invest 0.94 in NAS on August 31, 2024 and sell it today you would lose (0.52) from holding NAS or give up 55.91% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
EM vs. NAS
Performance |
| Timeline |
| EM |
| NAS |
EM and NAS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EM and NAS
The main advantage of trading using opposite EM and NAS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EM position performs unexpectedly, NAS 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 NAS will offset losses from the drop in NAS's long position.The idea behind EM and NAS 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
Other Complementary Tools
| Portfolio Anywhere Track or share privately all of your investments from the convenience of any device | |
| Aroon Oscillator Analyze current equity momentum using Aroon Oscillator and other momentum ratios | |
| Portfolio Dashboard Portfolio dashboard that provides centralized access to all your investments | |
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios | |
| My Watchlist Analysis Analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like |