Correlation Between Defense and Investec Emerging

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

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

Diversification Opportunities for Defense and Investec Emerging

0.8

Correlation Coefficient

Defense  Investec Emerging

Very poor diversification

The 3 months correlation between Defense and Investec is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Defense And Aerospace and Investec Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investec Emerging Markets and Defense 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 Defense And Aerospace are associated (or correlated) with Investec Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investec Emerging Markets has no effect on the direction of Defense i.e., Defense and Investec Emerging go up and down completely randomly.

Pair Corralation between Defense and Investec Emerging

Assuming the 90 days horizon Defense And Aerospace is expected to generate 1.42 times more return on investment than Investec Emerging. However, Defense is 1.42 times more volatile than Investec Emerging Markets. It trades about 0.1 of its potential returns per unit of risk. Investec Emerging Markets is currently generating about 0.04 per unit of risk. If you would invest  1,884  in Defense And Aerospace on February 19, 2025 and sell it today you would earn a total of  254.00  from holding Defense And Aerospace or generate 13.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Defense And Aerospace  vs.  Investec Emerging Markets

Defense And Aerospace

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Defense And Aerospace are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Defense showed solid returns over the last few months and may actually be approaching a breakup point.

Investec Emerging Markets

Risk-Adjusted Performance

Insignificant

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

Pair Trading with Defense and Investec Emerging

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

The idea behind Defense And Aerospace and Investec 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.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.