Can any of the company-specific risk be diversified away by investing in both Evaluator Moderate and Ashmore 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 Evaluator Moderate and Ashmore Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Evaluator Moderate Rms and Ashmore Emerging Markets, you can compare the effects of market volatilities on Evaluator Moderate and Ashmore 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 Evaluator Moderate with a short position of Ashmore Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Evaluator Moderate and Ashmore Emerging.
Diversification Opportunities for Evaluator Moderate and Ashmore Emerging
The 3 months correlation between Evaluator and Ashmore is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding EValuator Moderate RMS and Ashmore Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ashmore Emerging Markets and Evaluator Moderate 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 Evaluator Moderate Rms are associated (or correlated) with Ashmore Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ashmore Emerging Markets has no effect on the direction of Evaluator Moderate i.e., Evaluator Moderate and Ashmore Emerging go up and down completely randomly.
Pair Corralation between Evaluator Moderate and Ashmore Emerging
Assuming the 90 days horizon Evaluator Moderate is expected to generate 1.49 times less return on investment than Ashmore Emerging. But when comparing it to its historical volatility, Evaluator Moderate Rms is 1.07 times less risky than Ashmore Emerging. It trades about 0.39 of its potential returns per unit of risk. Ashmore Emerging Markets is currently generating about 0.54 of returns per unit of risk over similar time horizon. If you would invest 748.00 in Ashmore Emerging Markets on September 7, 2023 and sell it today you would earn a total of 44.00 from holding Ashmore Emerging Markets or generate 5.88% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Evaluator Moderate Rms are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Evaluator Moderate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Ashmore Emerging Markets are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Ashmore Emerging is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Evaluator Moderate and Ashmore Emerging Volatility Contrast
Predicted Return Density
Pair Trading with Evaluator Moderate and Ashmore Emerging
The main advantage of trading using opposite Evaluator Moderate and Ashmore Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Evaluator Moderate position performs unexpectedly, Ashmore 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 Ashmore Emerging will offset losses from the drop in Ashmore Emerging's long position.
The idea behind Evaluator Moderate Rms and Ashmore 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.
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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