Correlation Between Eafe Choice and Us Equity

Can any of the company-specific risk be diversified away by investing in both Eafe Choice and Us Equity 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 Us Equity 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 Equity Growth, you can compare the effects of market volatilities on Eafe Choice and Us Equity 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 Us Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eafe Choice and Us Equity.

Diversification Opportunities for Eafe Choice and Us Equity

-0.55

Correlation Coefficient

Eafe Choice  Us Equity

Excellent diversification

The 3 months correlation between Eafe and BGGKX is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding The Eafe Choice and The Equity Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth 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 Us Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth has no effect on the direction of Eafe Choice i.e., Eafe Choice and Us Equity go up and down completely randomly.

Pair Corralation between Eafe Choice and Us Equity

Assuming the 90 days horizon Eafe Choice is expected to generate 3.92 times less return on investment than Us Equity. But when comparing it to its historical volatility, The Eafe Choice is 1.76 times less risky than Us Equity. It trades about 0.03 of its potential returns per unit of risk. The Equity Growth is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,630  in The Equity Growth on September 5, 2024 and sell it today you would earn a total of  1,169  from holding The Equity Growth or generate 71.72% return on investment over 90 days.

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

The Eafe Choice  vs.  The Equity Growth

Eafe Choice

Risk-Adjusted Performance

0 of 100

Very Weak

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

Equity Growth

Risk-Adjusted Performance

23 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Equity Growth are ranked lower than 23 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Us Equity showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eafe Choice and Us Equity

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

The idea behind The Eafe Choice and The Equity Growth 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.