Correlation Between Sparinvest INDEX and Sparinvest Value

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

By analyzing existing cross correlation between Sparinvest INDEX Globale and Sparinvest Value Emerging, you can compare the effects of market volatilities on Sparinvest INDEX and Sparinvest Value 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 Sparinvest INDEX with a short position of Sparinvest Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sparinvest INDEX and Sparinvest Value.

Diversification Opportunities for Sparinvest INDEX and Sparinvest Value

-0.25

Correlation Coefficient

Sparinvest INDEX  Sparinvest Value

Very good diversification

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

Pair Corralation between Sparinvest INDEX and Sparinvest Value

Assuming the 90 days trading horizon Sparinvest INDEX Globale is expected to generate 0.7 times more return on investment than Sparinvest Value. However, Sparinvest INDEX Globale is 1.44 times less risky than Sparinvest Value. It trades about 0.06 of its potential returns per unit of risk. Sparinvest Value Emerging is currently generating about -0.08 per unit of risk. If you would invest  14,791  in Sparinvest INDEX Globale on October 24, 2024 and sell it today you would earn a total of  334.00  from holding Sparinvest INDEX Globale or generate 2.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Sparinvest INDEX Globale  vs.  Sparinvest Value Emerging

Sparinvest INDEX Globale

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sparinvest INDEX Globale are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of very healthy basic indicators, Sparinvest INDEX is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Sparinvest Value Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sparinvest Value Emerging has generated negative risk-adjusted returns adding no value to fund investors. Despite quite persistent primary indicators, Sparinvest Value is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Sparinvest INDEX and Sparinvest Value

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

The idea behind Sparinvest INDEX Globale and Sparinvest Value Emerging 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.