Correlation Between Active International and Investec Emerging

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

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

Diversification Opportunities for Active International and Investec Emerging

0.69

Correlation Coefficient

Active International  Investec Emerging

Poor diversification

The 3 months correlation between Active and Investec is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Active International Allocatio and Investec Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investec Emerging Markets and Active International 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 Active International Allocation are associated (or correlated) with Investec Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investec Emerging Markets has no effect on the direction of Active International i.e., Active International and Investec Emerging go up and down completely randomly.

Pair Corralation between Active International and Investec Emerging

Assuming the 90 days horizon Active International Allocation is expected to under-perform the Investec Emerging. But the mutual fund apears to be less risky and, when comparing its historical volatility, Active International Allocation is 1.03 times less risky than Investec Emerging. The mutual fund trades about -0.11 of its potential returns per unit of risk. The Investec Emerging Markets is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  1,091  in Investec Emerging Markets on October 22, 2024 and sell it today you would lose (27.00) from holding Investec Emerging Markets or give up 2.47% of portfolio value over 90 days.

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

Active International Allocatio  vs.  Investec Emerging Markets

Active International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Investec Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Active International and Investec Emerging

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

The idea behind Active International Allocation and Investec Emerging Markets 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.