Correlation Between Small Pany and Frontier Markets

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

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

Diversification Opportunities for Small Pany and Frontier Markets

0.69

Correlation Coefficient

Small Pany  Frontier Markets

Poor diversification

The 3 months correlation between Small and Frontier is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Growth and Frontier Markets Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontier Markets Por and Small Pany 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 Small Pany Growth are associated (or correlated) with Frontier Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontier Markets Por has no effect on the direction of Small Pany i.e., Small Pany and Frontier Markets go up and down completely randomly.

Pair Corralation between Small Pany and Frontier Markets

Assuming the 90 days horizon Small Pany Growth is expected to under-perform the Frontier Markets. In addition to that, Small Pany is 2.56 times more volatile than Frontier Markets Portfolio. It trades about -0.28 of its total potential returns per unit of risk. Frontier Markets Portfolio is currently generating about -0.19 per unit of volatility. If you would invest  1,560  in Frontier Markets Portfolio on January 29, 2024 and sell it today you would lose (42.00) from holding Frontier Markets Portfolio or give up 2.69% of portfolio value over 90 days.

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

Small Pany Growth  vs.  Frontier Markets Portfolio

Small Pany Growth

Risk-Adjusted Performance

0 of 100

Very Weak

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

Frontier Markets Por

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Frontier Markets Portfolio are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Frontier 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 Small Pany and Frontier Markets

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

The idea behind Small Pany Growth and Frontier Markets Portfolio 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.