Correlation Between Alger Small and Emerging Markets | AASOX vs. HCEMX

Correlation Between Alger Small and Emerging Markets

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

Diversification Opportunities for Alger Small and Emerging Markets

AlgerEmergingDiversified AwayAlgerEmergingDiversified Away100%
-0.22
  Correlation Coefficient

Very good diversification

The 3 months correlation between Alger and Emerging is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Alger Small Cap and The Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets and Alger 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 Alger Small Cap are associated (or correlated) with Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets has no effect on the direction of Alger Small i.e., Alger Small and Emerging Markets go up and down completely randomly.

Pair Corralation between Alger Small and Emerging Markets

Assuming the 90 days horizon Alger Small Cap is expected to generate 1.4 times more return on investment than Emerging Markets. However, Alger Small is 1.4 times more volatile than The Emerging Markets. It trades about 0.06 of its potential returns per unit of risk. The Emerging Markets is currently generating about 0.04 per unit of risk. If you would invest  1,401  in Alger Small Cap on September 14, 2024 and sell it today you would earn a total of  492.00  from holding Alger Small Cap or generate 35.12% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Alger Small Cap  vs.  The Emerging Markets

 Performance 
JavaScript chart by amCharts 3.21.15OctNov 2468101214
JavaScript chart by amCharts 3.21.15AASOX HCEMX
       Timeline  
Alger Small Cap 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Alger Small Cap are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Alger Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec17.51818.51919.5
Emerging Markets 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in The Emerging Markets are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Emerging Markets is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec1919.52020.5

Alger Small and Emerging Markets Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.79-2.84-1.89-0.940.00.982.03.014.035.04 0.10.20.30.4
JavaScript chart by amCharts 3.21.15AASOX HCEMX
       Returns  

Pair Trading with Alger Small and Emerging Markets

The main advantage of trading using opposite Alger Small and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alger Small position performs unexpectedly, Emerging Markets 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 Emerging Markets will offset losses from the drop in Emerging Markets' long position.
The idea behind Alger Small Cap and The 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.
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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.

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