Correlation Between Inverse Government and Vanguard Emerging

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

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

Diversification Opportunities for Inverse Government and Vanguard Emerging

-0.18

Correlation Coefficient

Inverse Government  Vanguard Emerging

Good diversification

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

Pair Corralation between Inverse Government and Vanguard Emerging

Assuming the 90 days horizon Inverse Government Long is expected to generate 1.27 times more return on investment than Vanguard Emerging. However, Inverse Government is 1.27 times more volatile than Vanguard Emerging Markets. It trades about 0.06 of its potential returns per unit of risk. Vanguard Emerging Markets is currently generating about 0.03 per unit of risk. If you would invest  14,395  in Inverse Government Long on October 11, 2024 and sell it today you would earn a total of  4,267  from holding Inverse Government Long or generate 29.64% return on investment over 90 days.

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

Inverse Government Long  vs.  Vanguard Emerging Markets

Inverse Government Long

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Government Long are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Inverse Government may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Vanguard Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Emerging Markets has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Inverse Government and Vanguard Emerging

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

The idea behind Inverse Government Long and Vanguard 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.