Correlation Between EM and LRN

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Can any of the company-specific risk be diversified away by investing in both EM and LRN 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 LRN into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EM and LRN, you can compare the effects of market volatilities on EM and LRN 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 LRN. Check out your portfolio center. Please also check ongoing floating volatility patterns of EM and LRN.

Diversification Opportunities for EM and LRN

0.36
  Correlation Coefficient
 EM
 LRN

Weak diversification

The 3 months correlation between EM and LRN is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding EM and LRN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LRN 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 LRN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LRN has no effect on the direction of EM i.e., EM and LRN go up and down completely randomly.

Pair Corralation between EM and LRN

Assuming the 90 days horizon EM is expected to generate 0.51 times more return on investment than LRN. However, EM is 1.95 times less risky than LRN. It trades about 0.0 of its potential returns per unit of risk. LRN is currently generating about 0.0 per unit of risk. If you would invest  0.09  in EM on December 29, 2023 and sell it today you would lose  0.00  from holding EM or give up 2.63% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

EM  vs.  LRN

 Performance 
       Timeline  
EM 

Risk-Adjusted Performance

2 of 100

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

Risk-Adjusted Performance

2 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in LRN are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, LRN exhibited solid returns over the last few months and may actually be approaching a breakup point.

EM and LRN Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with EM and LRN

The main advantage of trading using opposite EM and LRN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EM position performs unexpectedly, LRN 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 LRN will offset losses from the drop in LRN's long position.
The idea behind EM and LRN 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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