Correlation Between Banking Fund and Inverse Emerging

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

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

Diversification Opportunities for Banking Fund and Inverse Emerging

0.78

Correlation Coefficient

Banking Fund  Inverse Emerging

Poor diversification

The 3 months correlation between Banking and Inverse is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Banking Fund Class and Inverse Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Emerging Markets and Banking Fund 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 Banking Fund Class are associated (or correlated) with Inverse Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Emerging Markets has no effect on the direction of Banking Fund i.e., Banking Fund and Inverse Emerging go up and down completely randomly.

Pair Corralation between Banking Fund and Inverse Emerging

Assuming the 90 days horizon Banking Fund Class is expected to generate 0.58 times more return on investment than Inverse Emerging. However, Banking Fund Class is 1.74 times less risky than Inverse Emerging. It trades about 0.06 of its potential returns per unit of risk. Inverse Emerging Markets is currently generating about -0.04 per unit of risk. If you would invest  7,481  in Banking Fund Class on October 1, 2024 and sell it today you would earn a total of  1,468  from holding Banking Fund Class or generate 19.62% return on investment over 90 days.

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

Banking Fund Class  vs.  Inverse Emerging Markets

Banking Fund Class

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Banking Fund Class are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Banking Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Inverse Emerging Markets

Risk-Adjusted Performance

7 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Emerging Markets are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Inverse Emerging showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Banking Fund and Inverse Emerging

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

The idea behind Banking Fund Class and Inverse 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 Global Correlations module to find global opportunities by holding instruments from different markets.