Correlation Between Eafe Fund and Long Term
Can any of the company-specific risk be diversified away by investing in both Eafe Fund 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 Fund 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 Fund and The Long Term, you can compare the effects of market volatilities on Eafe Fund 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 Fund with a short position of Long Term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eafe Fund and Long Term.
Diversification Opportunities for Eafe Fund and Long Term
Poor diversification
The 3 months correlation between Eafe and Long is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding The Eafe Fund 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 Fund 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 Fund 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 Fund i.e., Eafe Fund and Long Term go up and down completely randomly.
Pair Corralation between Eafe Fund and Long Term
Assuming the 90 days horizon The Eafe Fund is expected to generate 1.03 times more return on investment than Long Term. However, Eafe Fund is 1.03 times more volatile than The Long Term. It trades about -0.02 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 1,354 in The Eafe Fund on December 27, 2024 and sell it today you would lose (35.00) from holding The Eafe Fund or give up 2.58% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 98.36% |
Values | Daily Returns |
The Eafe Fund vs. The Long Term
Performance |
Timeline |
Eafe Fund |
Long Term |
Eafe Fund and Long Term Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Eafe Fund and Long Term
The main advantage of trading using opposite Eafe Fund and Long Term positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eafe Fund 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.Eafe Fund vs. Goldman Sachs Technology | Eafe Fund vs. Putnam Global Technology | Eafe Fund vs. Goldman Sachs Technology | Eafe Fund vs. Health Biotchnology Portfolio |
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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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