Can any of the company-specific risk be diversified away by investing in both Siit Small and Siit 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 Siit Small and Siit Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Siit Small Mid and Siit Emerging Markets, you can compare the effects of market volatilities on Siit Small and Siit 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 Siit Small with a short position of Siit Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Siit Small and Siit Emerging.
Diversification Opportunities for Siit Small and Siit Emerging
The 3 months correlation between Siit and Siit is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding SIIT SMALL MID and SIIT EMERGING MARKETS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Siit Emerging Markets and Siit Small 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 Siit Small Mid are associated (or correlated) with Siit Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Siit Emerging Markets has no effect on the direction of Siit Small i.e., Siit Small and Siit Emerging go up and down completely randomly.
Pair Corralation between Siit Small and Siit Emerging
Assuming the 90 days horizon Siit Small Mid is expected to generate 1.68 times more return on investment than Siit Emerging. However, Siit Small is 1.68 times more volatile than Siit Emerging Markets. It trades about 0.28 of its potential returns per unit of risk. Siit Emerging Markets is currently generating about 0.36 per unit of risk. If you would invest 850.00 in Siit Small Mid on September 3, 2023 and sell it today you would earn a total of 65.00 from holding Siit Small Mid or generate 7.65% return on investment over 90 days.
Over the last 90 days Siit Small Mid has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Siit Small 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 Siit Emerging Markets are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Siit Emerging is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
The main advantage of trading using opposite Siit Small and Siit Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Siit Small position performs unexpectedly, Siit 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 Siit Emerging will offset losses from the drop in Siit Emerging's long position.
The idea behind Siit Small Mid and Siit 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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