Correlation Between Thornburg International and Thornburg Developing
Can any of the company-specific risk be diversified away by investing in both Thornburg International and Thornburg Developing 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 Thornburg International and Thornburg Developing into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Thornburg International Value and Thornburg Developing World, you can compare the effects of market volatilities on Thornburg International and Thornburg Developing 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 Thornburg International with a short position of Thornburg Developing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Thornburg International and Thornburg Developing.
Diversification Opportunities for Thornburg International and Thornburg Developing
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Thornburg and Thornburg is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Thornburg International Value and Thornburg Developing World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thornburg Developing and Thornburg International 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 Thornburg International Value are associated (or correlated) with Thornburg Developing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thornburg Developing has no effect on the direction of Thornburg International i.e., Thornburg International and Thornburg Developing go up and down completely randomly.
Pair Corralation between Thornburg International and Thornburg Developing
Assuming the 90 days horizon Thornburg International Value is expected to generate 0.9 times more return on investment than Thornburg Developing. However, Thornburg International Value is 1.12 times less risky than Thornburg Developing. It trades about 0.06 of its potential returns per unit of risk. Thornburg Developing World is currently generating about 0.03 per unit of risk. If you would invest 2,200 in Thornburg International Value on September 3, 2024 and sell it today you would earn a total of 520.00 from holding Thornburg International Value or generate 23.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Thornburg International Value vs. Thornburg Developing World
Performance |
| Timeline |
| Thornburg International |
| Thornburg Developing |
Thornburg International and Thornburg Developing Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Thornburg International and Thornburg Developing
The main advantage of trading using opposite Thornburg International and Thornburg Developing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Thornburg International position performs unexpectedly, Thornburg Developing 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 Thornburg Developing will offset losses from the drop in Thornburg Developing's long position.The idea behind Thornburg International Value and Thornburg Developing World 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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