Correlation Between Long Term and Eafe Fund

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

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

Diversification Opportunities for Long Term and Eafe Fund

0.64

Correlation Coefficient

Long Term  Eafe Fund

Poor diversification

The 3 months correlation between Long and Eafe is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding The Long Term and The Eafe Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eafe Fund and Long Term 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 Long Term are associated (or correlated) with Eafe Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eafe Fund has no effect on the direction of Long Term i.e., Long Term and Eafe Fund go up and down completely randomly.

Pair Corralation between Long Term and Eafe Fund

Assuming the 90 days horizon The Long Term is expected to generate 1.17 times more return on investment than Eafe Fund. However, Long Term is 1.17 times more volatile than The Eafe Fund. It trades about 0.18 of its potential returns per unit of risk. The Eafe Fund is currently generating about 0.06 per unit of risk. If you would invest  2,856  in The Long Term on September 4, 2024 and sell it today you would earn a total of  425.00  from holding The Long Term or generate 14.88% return on investment over 90 days.

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

The Long Term  vs.  The Eafe Fund

Long Term

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Long Term are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Long Term showed solid returns over the last few months and may actually be approaching a breakup point.

Eafe Fund

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Eafe Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking signals, Eafe Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Long Term and Eafe Fund

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

The idea behind The Long Term and The Eafe Fund 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.