Correlation Between Basic Materials and Brandes Emerging

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

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

Diversification Opportunities for Basic Materials and Brandes Emerging

0.68

Correlation Coefficient

Basic Materials  Brandes Emerging

Poor diversification

The 3 months correlation between Basic and Brandes is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Ultrasector and Brandes Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brandes Emerging Markets and Basic Materials 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 Basic Materials Ultrasector are associated (or correlated) with Brandes Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brandes Emerging Markets has no effect on the direction of Basic Materials i.e., Basic Materials and Brandes Emerging go up and down completely randomly.

Pair Corralation between Basic Materials and Brandes Emerging

Assuming the 90 days horizon Basic Materials is expected to generate 1.42 times less return on investment than Brandes Emerging. In addition to that, Basic Materials is 2.27 times more volatile than Brandes Emerging Markets. It trades about 0.09 of its total potential returns per unit of risk. Brandes Emerging Markets is currently generating about 0.29 per unit of volatility. If you would invest  956.00  in Brandes Emerging Markets on May 15, 2025 and sell it today you would earn a total of  113.00  from holding Brandes Emerging Markets or generate 11.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Basic Materials Ultrasector  vs.  Brandes Emerging Markets

Basic Materials Ultr

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in Basic Materials Ultrasector are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Basic Materials may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Brandes Emerging Markets

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Brandes Emerging Markets are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Brandes Emerging may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Basic Materials and Brandes Emerging

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

The idea behind Basic Materials Ultrasector and Brandes Emerging Markets 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.