Correlation Between Rakuten and Emerge Commerce

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

By analyzing existing cross correlation between Rakuten Inc ADR and Emerge Commerce, you can compare the effects of market volatilities on Rakuten and Emerge Commerce 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 Rakuten with a short position of Emerge Commerce. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rakuten and Emerge Commerce.

Diversification Opportunities for Rakuten and Emerge Commerce

0.25

Correlation Coefficient

Rakuten  Emerge Commerce

Modest diversification

The 3 months correlation between Rakuten and Emerge is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Rakuten Inc ADR and Emerge Commerce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerge Commerce and Rakuten 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 Rakuten Inc ADR are associated (or correlated) with Emerge Commerce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerge Commerce has no effect on the direction of Rakuten i.e., Rakuten and Emerge Commerce go up and down completely randomly.

Pair Corralation between Rakuten and Emerge Commerce

Assuming the 90 days horizon Rakuten Inc ADR is expected to under-perform the Emerge Commerce. But the pink sheet apears to be less risky and, when comparing its historical volatility, Rakuten Inc ADR is 43.36 times less risky than Emerge Commerce. The pink sheet trades about -0.1 of its potential returns per unit of risk. The Emerge Commerce is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2.50  in Emerge Commerce on September 4, 2024 and sell it today you would earn a total of  0.01  from holding Emerge Commerce or generate 0.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Rakuten Inc ADR  vs.  Emerge Commerce

Rakuten Inc ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rakuten Inc ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Emerge Commerce

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Emerge Commerce are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent primary indicators, Emerge Commerce reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rakuten and Emerge Commerce

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

The idea behind Rakuten Inc ADR and Emerge Commerce 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.