Correlation Between Ultra Short and Ashmore Emerging

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

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

Diversification Opportunities for Ultra Short and Ashmore Emerging

0.04

Correlation Coefficient

Ultra Short  Ashmore Emerging

Significant diversification

The 3 months correlation between Ultra and Ashmore is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Short Term Bond and Ashmore Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ashmore Emerging Markets and Ultra Short 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 Ultra Short Term Bond are associated (or correlated) with Ashmore Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ashmore Emerging Markets has no effect on the direction of Ultra Short i.e., Ultra Short and Ashmore Emerging go up and down completely randomly.

Pair Corralation between Ultra Short and Ashmore Emerging

Assuming the 90 days horizon Ultra Short Term Bond is expected to generate 0.08 times more return on investment than Ashmore Emerging. However, Ultra Short Term Bond is 13.27 times less risky than Ashmore Emerging. It trades about -0.23 of its potential returns per unit of risk. Ashmore Emerging Markets is currently generating about -0.44 per unit of risk. If you would invest  1,008  in Ultra Short Term Bond on October 10, 2024 and sell it today you would lose (1.00) from holding Ultra Short Term Bond or give up 0.1% of portfolio value over 90 days.

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

Ultra Short Term Bond  vs.  Ashmore Emerging Markets

Ultra Short Term

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Short Term Bond are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Ultra Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ashmore Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ultra Short and Ashmore Emerging

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

The idea behind Ultra Short Term Bond and Ashmore 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.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.