Correlation Between Strategic Alternatives and Emerging Markets

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

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

Diversification Opportunities for Strategic Alternatives and Emerging Markets

-0.2

Correlation Coefficient

Strategic Alternatives  Emerging Markets

Good diversification

The 3 months correlation between Strategic and Emerging is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Strategic Alternatives Fund and Emerging Markets Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Equity and Strategic Alternatives 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 Strategic Alternatives Fund are associated (or correlated) with Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets Equity has no effect on the direction of Strategic Alternatives i.e., Strategic Alternatives and Emerging Markets go up and down completely randomly.

Pair Corralation between Strategic Alternatives and Emerging Markets

Assuming the 90 days horizon Strategic Alternatives Fund is expected to under-perform the Emerging Markets. But the mutual fund apears to be less risky and, when comparing its historical volatility, Strategic Alternatives Fund is 1.71 times less risky than Emerging Markets. The mutual fund trades about -0.07 of its potential returns per unit of risk. The Emerging Markets Equity is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  977.00  in Emerging Markets Equity on September 17, 2024 and sell it today you would earn a total of  20.00  from holding Emerging Markets Equity or generate 2.05% return on investment over 90 days.

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

Strategic Alternatives Fund  vs.  Emerging Markets Equity

Strategic Alternatives

Risk-Adjusted Performance

0 of 100

Very Weak

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

Emerging Markets Equity

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets Equity are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Emerging Markets is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Strategic Alternatives and Emerging Markets

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

The idea behind Strategic Alternatives Fund and Emerging Markets Equity 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.