Correlation Between Emerging Markets and Equity Growth
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Equity Growth 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 Emerging Markets and Equity Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emerging Markets Fund and Equity Growth Fund, you can compare the effects of market volatilities on Emerging Markets and Equity Growth 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 Emerging Markets with a short position of Equity Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Equity Growth.
Diversification Opportunities for Emerging Markets and Equity Growth
0.01 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Emerging and Equity is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Fund and Equity Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth and Emerging Markets 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 Emerging Markets Fund are associated (or correlated) with Equity Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth has no effect on the direction of Emerging Markets i.e., Emerging Markets and Equity Growth go up and down completely randomly.
Pair Corralation between Emerging Markets and Equity Growth
Assuming the 90 days horizon Emerging Markets Fund is expected to under-perform the Equity Growth. But the mutual fund apears to be less risky and, when comparing its historical volatility, Emerging Markets Fund is 1.09 times less risky than Equity Growth. The mutual fund trades about -0.07 of its potential returns per unit of risk. The Equity Growth Fund is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 3,441 in Equity Growth Fund on October 25, 2024 and sell it today you would earn a total of 33.00 from holding Equity Growth Fund or generate 0.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 94.74% |
| Values | Daily Returns |
Emerging Markets Fund vs. Equity Growth Fund
Performance |
| Timeline |
| Emerging Markets |
| Equity Growth |
Emerging Markets and Equity Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and Equity Growth
The main advantage of trading using opposite Emerging Markets and Equity Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Equity Growth 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 Equity Growth will offset losses from the drop in Equity Growth's long position.| Emerging Markets vs. International Growth Fund | Emerging Markets vs. Value Fund I | Emerging Markets vs. Mfs International New | Emerging Markets vs. Heritage Fund I |
| Equity Growth vs. Prudential High Yield | Equity Growth vs. Barings High Yield | Equity Growth vs. Aqr Risk Parity | Equity Growth vs. Access Flex High |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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