Correlation Between OShares Global and OShares Small

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

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

Diversification Opportunities for OShares Global and OShares Small

0.6

Correlation Coefficient

OShares Global  OShares Small

Poor diversification

The 3 months correlation between OShares and OShares is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding OShares Global Internet and OShares Small Cap Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OShares Small Cap and OShares Global 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 OShares Global Internet are associated (or correlated) with OShares Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OShares Small Cap has no effect on the direction of OShares Global i.e., OShares Global and OShares Small go up and down completely randomly.

Pair Corralation between OShares Global and OShares Small

Given the investment horizon of 90 days OShares Global Internet is expected to generate 1.29 times more return on investment than OShares Small. However, OShares Global is 1.29 times more volatile than OShares Small Cap Quality. It trades about 0.11 of its potential returns per unit of risk. OShares Small Cap Quality is currently generating about 0.07 per unit of risk. If you would invest  3,945  in OShares Global Internet on September 29, 2024 and sell it today you would earn a total of  744.00  from holding OShares Global Internet or generate 18.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.21%
Values	Daily Returns

OShares Global Internet  vs.  OShares Small Cap Quality

OShares Global Internet

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in OShares Global Internet are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting forward indicators, OShares Global may actually be approaching a critical reversion point that can send shares even higher in January 2025.

OShares Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OShares Small Cap Quality has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, OShares Small is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with OShares Global and OShares Small

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

The idea behind OShares Global Internet and OShares Small Cap Quality 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.