Correlation Between Emerging Markets and Us Equity
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Us Equity 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 Us Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Emerging Markets and The Equity Growth, you can compare the effects of market volatilities on Emerging Markets and Us Equity 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 Us Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Us Equity.
Diversification Opportunities for Emerging Markets and Us Equity
-0.6 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Emerging and BGGKX is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding The Emerging Markets and The Equity Growth 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 The Emerging Markets are associated (or correlated) with Us Equity. 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 Us Equity go up and down completely randomly.
Pair Corralation between Emerging Markets and Us Equity
Assuming the 90 days horizon Emerging Markets is expected to generate 4.04 times less return on investment than Us Equity. But when comparing it to its historical volatility, The Emerging Markets is 1.59 times less risky than Us Equity. It trades about 0.03 of its potential returns per unit of risk. The Equity Growth is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 1,715 in The Equity Growth on October 25, 2024 and sell it today you would earn a total of 1,110 from holding The Equity Growth or generate 64.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
The Emerging Markets vs. The Equity Growth
Performance |
| Timeline |
| Emerging Markets |
| Equity Growth |
Emerging Markets and Us Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and Us Equity
The main advantage of trading using opposite Emerging Markets and Us Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Us Equity 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 Us Equity will offset losses from the drop in Us Equity's long position.| Emerging Markets vs. Vy Goldman Sachs | Emerging Markets vs. Short Precious Metals | Emerging Markets vs. The Gold Bullion | Emerging Markets vs. Gamco Global Gold |
| Us Equity vs. Jpmorgan Value Advantage | Us Equity vs. Jpmorgan Equity Income | Us Equity vs. Barloworld Ltd ADR | Us Equity vs. Morningstar Unconstrained Allocation |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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