Correlation Between EM and SXP
Can any of the company-specific risk be diversified away by investing in both EM and SXP 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 SXP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EM and SXP, you can compare the effects of market volatilities on EM and SXP 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 SXP. Check out your portfolio center. Please also check ongoing floating volatility patterns of EM and SXP.
Diversification Opportunities for EM and SXP
Pay attention - limited upside
The 3 months correlation between EM and SXP is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding EM and SXP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SXP 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 SXP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SXP has no effect on the direction of EM i.e., EM and SXP go up and down completely randomly.
Pair Corralation between EM and SXP
If you would invest 26.00 in SXP on August 27, 2024 and sell it today you would earn a total of 14.00 from holding SXP or generate 53.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
EM vs. SXP
Performance |
| Timeline |
| EM |
| SXP |
EM and SXP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EM and SXP
The main advantage of trading using opposite EM and SXP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EM position performs unexpectedly, SXP 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 SXP will offset losses from the drop in SXP's long position.The idea behind EM and SXP 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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