Correlation Between Moderately Aggressive and Inverse Emerging
Can any of the company-specific risk be diversified away by investing in both Moderately Aggressive and Inverse 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 Moderately Aggressive and Inverse Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Moderately Aggressive Balanced and Inverse Emerging Markets, you can compare the effects of market volatilities on Moderately Aggressive and Inverse 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 Moderately Aggressive with a short position of Inverse Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Moderately Aggressive and Inverse Emerging.
Diversification Opportunities for Moderately Aggressive and Inverse Emerging
0.35 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Moderately and Inverse is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Moderately Aggressive Balanced and Inverse Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Emerging Markets and Moderately Aggressive 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 Moderately Aggressive Balanced are associated (or correlated) with Inverse Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Emerging Markets has no effect on the direction of Moderately Aggressive i.e., Moderately Aggressive and Inverse Emerging go up and down completely randomly.
Pair Corralation between Moderately Aggressive and Inverse Emerging
Assuming the 90 days horizon Moderately Aggressive Balanced is expected to generate 0.22 times more return on investment than Inverse Emerging. However, Moderately Aggressive Balanced is 4.49 times less risky than Inverse Emerging. It trades about 0.07 of its potential returns per unit of risk. Inverse Emerging Markets is currently generating about 0.0 per unit of risk. If you would invest 976.00 in Moderately Aggressive Balanced on October 16, 2024 and sell it today you would earn a total of 205.00 from holding Moderately Aggressive Balanced or generate 21.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Moderately Aggressive Balanced vs. Inverse Emerging Markets
Performance |
| Timeline |
| Moderately Aggressive |
| Inverse Emerging Markets |
Moderately Aggressive and Inverse Emerging Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Moderately Aggressive and Inverse Emerging
The main advantage of trading using opposite Moderately Aggressive and Inverse Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Moderately Aggressive position performs unexpectedly, Inverse 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 Inverse Emerging will offset losses from the drop in Inverse Emerging's long position.The idea behind Moderately Aggressive Balanced and Inverse 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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