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

0.54

Correlation Coefficient

Eafe Fund  Long Term

Very weak diversification

The 3 months correlation between Eafe and Long is 0.54. 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 1.01 times more return on investment than Long Term. However, Eafe Fund is 1.01 times more volatile than The Long Term. It trades about 0.04 of its potential returns per unit of risk. The Long Term is currently generating about -0.13 per unit of risk. If you would invest  1,330  in The Eafe Fund on December 2, 2024 and sell it today you would earn a total of  14.00  from holding The Eafe Fund or generate 1.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

The Eafe Fund  vs.  The Long Term

Eafe Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Eafe Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Eafe Fund 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

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Long Term are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. 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 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.

The idea behind The Eafe Fund 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.