Correlation Between Pzena Emerging and Ariel International

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

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

Diversification Opportunities for Pzena Emerging and Ariel International

0.18

Correlation Coefficient

Pzena Emerging  Ariel International

Average diversification

The 3 months correlation between Pzena and Ariel is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Pzena Emerging Markets and Ariel International Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ariel International and Pzena Emerging 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 Pzena Emerging Markets are associated (or correlated) with Ariel International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ariel International has no effect on the direction of Pzena Emerging i.e., Pzena Emerging and Ariel International go up and down completely randomly.

Pair Corralation between Pzena Emerging and Ariel International

Assuming the 90 days horizon Pzena Emerging is expected to generate 1.61 times less return on investment than Ariel International. But when comparing it to its historical volatility, Pzena Emerging Markets is 1.42 times less risky than Ariel International. It trades about 0.35 of its potential returns per unit of risk. Ariel International Fund is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  1,460  in Ariel International Fund on November 20, 2024 and sell it today you would earn a total of  105.00  from holding Ariel International Fund or generate 7.19% return on investment over 90 days.

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

Pzena Emerging Markets  vs.  Ariel International Fund

Pzena Emerging Markets

Risk-Adjusted Performance

Very Weak

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

Ariel International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ariel International Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ariel International may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Pzena Emerging and Ariel International

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

The idea behind Pzena Emerging Markets and Ariel International Fund 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.