Correlation Between EM and Audius

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

By analyzing existing cross correlation between EM and Audius, you can compare the effects of market volatilities on EM and Audius 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 Audius. Check out your portfolio center. Please also check ongoing floating volatility patterns of EM and Audius.

Diversification Opportunities for EM and Audius

0.79

Correlation Coefficient

EM  Audius

Poor diversification

The 3 months correlation between EM and Audius is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding EM and Audius in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Audius 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 Audius. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Audius has no effect on the direction of EM i.e., EM and Audius go up and down completely randomly.

Pair Corralation between EM and Audius

Assuming the 90 days horizon EM is expected to generate 0.67 times more return on investment than Audius. However, EM is 1.49 times less risky than Audius. It trades about -0.02 of its potential returns per unit of risk. Audius is currently generating about -0.06 per unit of risk. If you would invest  0.08  in EM on January 20, 2024 and sell it today you would lose (0.01) from holding EM or give up 8.97% of portfolio value over 90 days.

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

EM  vs.  Audius

EM

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in EM are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, EM exhibited solid returns over the last few months and may actually be approaching a breakup point.

Audius

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Audius are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Audius may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with EM and Audius

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

The idea behind EM and Audius 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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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.