Correlation Between EM and NAV
Can any of the company-specific risk be diversified away by investing in both EM and NAV 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 NAV into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EM and NAV, you can compare the effects of market volatilities on EM and NAV 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 NAV. Check out your portfolio center. Please also check ongoing floating volatility patterns of EM and NAV.
Diversification Opportunities for EM and NAV
Pay attention - limited upside
The 3 months correlation between EM and NAV is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding EM and NAV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NAV 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 NAV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NAV has no effect on the direction of EM i.e., EM and NAV go up and down completely randomly.
Pair Corralation between EM and NAV
If you would invest 0.01 in EM on August 30, 2024 and sell it today you would earn a total of 0.00 from holding EM or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
EM vs. NAV
Performance |
| Timeline |
| EM |
| NAV |
EM and NAV Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EM and NAV
The main advantage of trading using opposite EM and NAV positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EM position performs unexpectedly, NAV 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 NAV will offset losses from the drop in NAV's long position.The idea behind EM and NAV 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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