Correlation Between Marlin and EM

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

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

Diversification Opportunities for Marlin and EM

0.64

Correlation Coefficient

Marlin  EM

Poor diversification

The 3 months correlation between Marlin and EM is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Marlin and EM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EM and Marlin 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 Marlin are associated (or correlated) with EM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EM has no effect on the direction of Marlin i.e., Marlin and EM go up and down completely randomly.

Pair Corralation between Marlin and EM

Assuming the 90 days trading horizon Marlin is expected to under-perform the EM. In addition to that, Marlin is 2.51 times more volatile than EM. It trades about -0.27 of its total potential returns per unit of risk. EM is currently generating about -0.16 per unit of volatility. If you would invest  0.08  in EM on January 28, 2024 and sell it today you would lose (0.01) from holding EM or give up 9.89% of portfolio value over 90 days.

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

Marlin  vs.  EM

Marlin

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Marlin are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Marlin exhibited solid returns over the last few months and may actually be approaching a breakup point.

EM

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in EM are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, EM may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Marlin and EM

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

The idea behind Marlin and EM 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..