Correlation Between Eafe Choice and Long Term

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

By analyzing existing cross correlation between The Eafe Choice and The Long Term, you can compare the effects of market volatilities on Eafe Choice and Long Term 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 Eafe Choice with a short position of Long Term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eafe Choice and Long Term.

Diversification Opportunities for Eafe Choice and Long Term

0.31

Correlation Coefficient

Eafe Choice  Long Term

Weak diversification

The 3 months correlation between Eafe and Long is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding The Eafe Choice and The Long Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Long Term and Eafe Choice 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 The Eafe Choice are associated (or correlated) with Long Term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Long Term has no effect on the direction of Eafe Choice i.e., Eafe Choice and Long Term go up and down completely randomly.

Pair Corralation between Eafe Choice and Long Term

Assuming the 90 days horizon The Eafe Choice is expected to generate 0.61 times more return on investment than Long Term. However, The Eafe Choice is 1.64 times less risky than Long Term. It trades about 0.04 of its potential returns per unit of risk. The Long Term is currently generating about -0.02 per unit of risk. If you would invest  1,438  in The Eafe Choice on December 27, 2024 and sell it today you would earn a total of  33.00  from holding The Eafe Choice or generate 2.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

The Eafe Choice  vs.  The Long Term

Eafe Choice

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Eafe Choice are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Eafe Choice is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Long Term

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Long Term has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Long Term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Eafe Choice and Long Term

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

The idea behind The Eafe Choice and The Long Term 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.