Correlation Between Emerald Insights and Emerald Growth

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

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

Diversification Opportunities for Emerald Insights and Emerald Growth

0.84

Correlation Coefficient

Emerald Insights  Emerald Growth

Very poor diversification

The 3 months correlation between Emerald and Emerald is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Emerald Insights Fund and Emerald Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerald Growth and Emerald Insights 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 Emerald Insights Fund are associated (or correlated) with Emerald Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerald Growth has no effect on the direction of Emerald Insights i.e., Emerald Insights and Emerald Growth go up and down completely randomly.

Pair Corralation between Emerald Insights and Emerald Growth

Assuming the 90 days horizon Emerald Insights Fund is expected to generate 0.97 times more return on investment than Emerald Growth. However, Emerald Insights Fund is 1.03 times less risky than Emerald Growth. It trades about 0.05 of its potential returns per unit of risk. Emerald Growth Fund is currently generating about 0.03 per unit of risk. If you would invest  1,350  in Emerald Insights Fund on January 29, 2024 and sell it today you would earn a total of  442.00  from holding Emerald Insights Fund or generate 32.74% return on investment over 90 days.

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

Emerald Insights Fund  vs.  Emerald Growth Fund

Emerald Insights

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Emerald Insights Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Emerald Insights is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Emerald Growth

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Emerald Insights and Emerald Growth

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

The idea behind Emerald Insights Fund and Emerald Growth Fund 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.