Correlation Between Extended Market and Grandeur Peak

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

By analyzing existing cross correlation between Extended Market Index and Grandeur Peak Global, you can compare the effects of market volatilities on Extended Market and Grandeur Peak 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 Extended Market with a short position of Grandeur Peak. Check out your portfolio center. Please also check ongoing floating volatility patterns of Extended Market and Grandeur Peak.

Diversification Opportunities for Extended Market and Grandeur Peak

0.05

Correlation Coefficient

Extended Market  Grandeur Peak

Significant diversification

The 3 months correlation between Extended and Grandeur is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Extended Market Index and Grandeur Peak Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grandeur Peak Global and Extended Market 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 Extended Market Index are associated (or correlated) with Grandeur Peak. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grandeur Peak Global has no effect on the direction of Extended Market i.e., Extended Market and Grandeur Peak go up and down completely randomly.

Pair Corralation between Extended Market and Grandeur Peak

Assuming the 90 days horizon Extended Market Index is expected to generate 1.59 times more return on investment than Grandeur Peak. However, Extended Market is 1.59 times more volatile than Grandeur Peak Global. It trades about 0.14 of its potential returns per unit of risk. Grandeur Peak Global is currently generating about 0.02 per unit of risk. If you would invest  2,261  in Extended Market Index on September 14, 2024 and sell it today you would earn a total of  199.00  from holding Extended Market Index or generate 8.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Extended Market Index  vs.  Grandeur Peak Global

Extended Market Index

Risk-Adjusted Performance

10 of 100

OK

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

Grandeur Peak Global

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Grandeur Peak Global are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Grandeur Peak is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Extended Market and Grandeur Peak

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

The idea behind Extended Market Index and Grandeur Peak Global 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.