Correlation Between Trans Asia and E M

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

By analyzing existing cross correlation between Trans Asia Hotels and E M L, you can compare the effects of market volatilities on Trans Asia and E M 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 Trans Asia with a short position of E M. Check out your portfolio center. Please also check ongoing floating volatility patterns of Trans Asia and E M.

Diversification Opportunities for Trans Asia and E M

0.52

Correlation Coefficient

Trans Asia  E M

Very weak diversification

The 3 months correlation between Trans and EMLN0000 is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Trans Asia Hotels and E M L in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E M L and Trans Asia 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 Trans Asia Hotels are associated (or correlated) with E M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E M L has no effect on the direction of Trans Asia i.e., Trans Asia and E M go up and down completely randomly.

Pair Corralation between Trans Asia and E M

Assuming the 90 days trading horizon Trans Asia is expected to generate 1.66 times less return on investment than E M. But when comparing it to its historical volatility, Trans Asia Hotels is 3.62 times less risky than E M. It trades about 0.23 of its potential returns per unit of risk. E M L is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  360.00  in E M L on October 9, 2024 and sell it today you would earn a total of  30.00  from holding E M L or generate 8.33% return on investment over 90 days.

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

Trans Asia Hotels  vs.  E M L

Trans Asia Hotels

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Trans Asia Hotels are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Trans Asia may actually be approaching a critical reversion point that can send shares even higher in February 2025.

E M L

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in E M L are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, E M sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Trans Asia and E M

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

The idea behind Trans Asia Hotels and E M L 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.