Correlation Between EM and CVP

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

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

Diversification Opportunities for EM and CVP

0.0

Correlation Coefficient

EM  CVP

Pay attention - limited upside

The 3 months correlation between EM and CVP is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding EM and CVP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVP and EM 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 EM are associated (or correlated) with CVP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVP has no effect on the direction of EM i.e., EM and CVP go up and down completely randomly.

Pair Corralation between EM and CVP

If you would invest  1.71  in CVP on April 23, 2025 and sell it today you would earn a total of  1.12  from holding CVP or generate 65.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

EM  vs.  CVP

EM

Risk-Adjusted Performance

Very Weak

Over the last 90 days EM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, EM is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

CVP

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CVP are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, CVP exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EM and CVP

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

The idea behind EM and CVP 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.