Correlation Between Investec Emerging and Short-term Municipal

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

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

Diversification Opportunities for Investec Emerging and Short-term Municipal

0.79

Correlation Coefficient

Investec Emerging  Short-term Municipal

Poor diversification

The 3 months correlation between Investec and Short-term is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Investec Emerging Markets and Short Term Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Municipal and Investec Emerging 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 Investec Emerging Markets are associated (or correlated) with Short-term Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Municipal has no effect on the direction of Investec Emerging i.e., Investec Emerging and Short-term Municipal go up and down completely randomly.

Pair Corralation between Investec Emerging and Short-term Municipal

Assuming the 90 days horizon Investec Emerging Markets is expected to generate 12.58 times more return on investment than Short-term Municipal. However, Investec Emerging is 12.58 times more volatile than Short Term Municipal Bond. It trades about 0.1 of its potential returns per unit of risk. Short Term Municipal Bond is currently generating about 0.08 per unit of risk. If you would invest  1,063  in Investec Emerging Markets on December 29, 2024 and sell it today you would earn a total of  67.00  from holding Investec Emerging Markets or generate 6.3% return on investment over 90 days.

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

Investec Emerging Markets  vs.  Short Term Municipal Bond

Investec Emerging Markets

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Investec Emerging Markets are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Investec Emerging may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Short Term Municipal

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Short Term Municipal Bond are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Short-term Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Investec Emerging and Short-term Municipal

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

The idea behind Investec Emerging Markets and Short Term Municipal Bond 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 Transaction History module to view history of all your transactions and understand their impact on performance.