Correlation Between EM and GRIN

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

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

Diversification Opportunities for EM and GRIN

0.0

Correlation Coefficient

EM  GRIN

Pay attention - limited upside

The 3 months correlation between EM and GRIN is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding EM and GRIN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GRIN and EM 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 EM are associated (or correlated) with GRIN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GRIN has no effect on the direction of EM i.e., EM and GRIN go up and down completely randomly.

Pair Corralation between EM and GRIN

Assuming the 90 days horizon EM is expected to under-perform the GRIN. In addition to that, EM is 1.86 times more volatile than GRIN. It trades about -0.08 of its total potential returns per unit of risk. GRIN is currently generating about 0.07 per unit of volatility. If you would invest  3.43  in GRIN on September 1, 2024 and sell it today you would earn a total of  1.03  from holding GRIN or generate 30.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

EM  vs.  GRIN

EM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, EM is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

GRIN

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GRIN are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, GRIN exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EM and GRIN

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

The idea behind EM and GRIN 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.

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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.