Correlation Between E M and Pan Asia

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

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

Diversification Opportunities for E M and Pan Asia

0.33

Correlation Coefficient

E M  Pan Asia

Weak diversification

The 3 months correlation between EMLN0000 and Pan is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding E M L and Pan Asia Banking in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pan Asia Banking and E M 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 E M L are associated (or correlated) with Pan Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pan Asia Banking has no effect on the direction of E M i.e., E M and Pan Asia go up and down completely randomly.

Pair Corralation between E M and Pan Asia

Assuming the 90 days trading horizon E M is expected to generate 5.27 times less return on investment than Pan Asia. In addition to that, E M is 1.65 times more volatile than Pan Asia Banking. It trades about 0.04 of its total potential returns per unit of risk. Pan Asia Banking is currently generating about 0.36 per unit of volatility. If you would invest  2,270  in Pan Asia Banking on October 11, 2024 and sell it today you would earn a total of  1,380  from holding Pan Asia Banking or generate 60.79% return on investment over 90 days.

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

E M L  vs.  Pan Asia Banking

E M L

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in E M L are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, E M may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pan Asia Banking

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pan Asia Banking are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pan Asia sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with E M and Pan Asia

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

The idea behind E M L and Pan Asia Banking 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.