Correlation Between Driehaus Emerging and NYSE Composite

Can any of the company-specific risk be diversified away by investing in both Driehaus Emerging and NYSE Composite 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 Driehaus Emerging and NYSE Composite into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Driehaus Emerging Markets and NYSE Composite, you can compare the effects of market volatilities on Driehaus Emerging and NYSE Composite 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 Driehaus Emerging with a short position of NYSE Composite. Check out your portfolio center. Please also check ongoing floating volatility patterns of Driehaus Emerging and NYSE Composite.

Diversification Opportunities for Driehaus Emerging and NYSE Composite

0.42

Correlation Coefficient

Driehaus Emerging  NYSE Composite

Very weak diversification

The 3 months correlation between Driehaus and NYSE is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Driehaus Emerging Markets and NYSE Composite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NYSE Composite and Driehaus Emerging 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 Driehaus Emerging Markets are associated (or correlated) with NYSE Composite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NYSE Composite has no effect on the direction of Driehaus Emerging i.e., Driehaus Emerging and NYSE Composite go up and down completely randomly.

Pair Corralation between Driehaus Emerging and NYSE Composite

Assuming the 90 days horizon Driehaus Emerging Markets is expected to generate 1.14 times more return on investment than NYSE Composite. However, Driehaus Emerging is 1.14 times more volatile than NYSE Composite. It trades about 0.1 of its potential returns per unit of risk. NYSE Composite is currently generating about -0.22 per unit of risk. If you would invest  2,049  in Driehaus Emerging Markets on January 31, 2024 and sell it today you would earn a total of  35.00  from holding Driehaus Emerging Markets or generate 1.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Driehaus Emerging Markets  vs.  NYSE Composite

Pair Trading with Driehaus Emerging and NYSE Composite

The main advantage of trading using opposite Driehaus Emerging and NYSE Composite positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Driehaus Emerging position performs unexpectedly, NYSE Composite 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 NYSE Composite will offset losses from the drop in NYSE Composite's long position.

The idea behind Driehaus Emerging Markets and NYSE Composite 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.