Correlation Between Inverse Emerging and Dreyfus Bond

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

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

Diversification Opportunities for Inverse Emerging and Dreyfus Bond

-0.42

Correlation Coefficient

Inverse Emerging  Dreyfus Bond

Very good diversification

The 3 months correlation between Inverse and Dreyfus is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Emerging Markets and Dreyfus Bond Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dreyfus Bond Market and Inverse 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 Inverse Emerging Markets are associated (or correlated) with Dreyfus Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dreyfus Bond Market has no effect on the direction of Inverse Emerging i.e., Inverse Emerging and Dreyfus Bond go up and down completely randomly.

Pair Corralation between Inverse Emerging and Dreyfus Bond

Assuming the 90 days horizon Inverse Emerging Markets is expected to generate 6.65 times more return on investment than Dreyfus Bond. However, Inverse Emerging is 6.65 times more volatile than Dreyfus Bond Market. It trades about 0.05 of its potential returns per unit of risk. Dreyfus Bond Market is currently generating about -0.03 per unit of risk. If you would invest  750.00  in Inverse Emerging Markets on October 27, 2024 and sell it today you would earn a total of  42.00  from holding Inverse Emerging Markets or generate 5.6% return on investment over 90 days.

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

Inverse Emerging Markets  vs.  Dreyfus Bond Market

Inverse Emerging Markets

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Emerging Markets are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Inverse Emerging may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Dreyfus Bond Market

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Inverse Emerging and Dreyfus Bond

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

The idea behind Inverse Emerging Markets and Dreyfus Bond Market 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.