Correlation Between Stellar and Emerging Markets

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

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

Diversification Opportunities for Stellar and Emerging Markets

0.35

Correlation Coefficient

Stellar  Emerging Markets

Weak diversification

The 3 months correlation between Stellar and Emerging is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Stellar and Emerging Markets Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Small and Stellar 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 Stellar are associated (or correlated) with Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets Small has no effect on the direction of Stellar i.e., Stellar and Emerging Markets go up and down completely randomly.

Pair Corralation between Stellar and Emerging Markets

Assuming the 90 days trading horizon Stellar is expected to under-perform the Emerging Markets. In addition to that, Stellar is 6.76 times more volatile than Emerging Markets Small. It trades about -0.05 of its total potential returns per unit of risk. Emerging Markets Small is currently generating about -0.06 per unit of volatility. If you would invest  1,484  in Emerging Markets Small on December 21, 2024 and sell it today you would lose (55.00) from holding Emerging Markets Small or give up 3.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	93.65%
Values	Daily Returns

Stellar  vs.  Emerging Markets Small

Stellar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stellar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Crypto's primary indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for Stellar shareholders.

Emerging Markets Small

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Stellar and Emerging Markets

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

The idea behind Stellar and Emerging Markets Small 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.