Correlation Between Emerging Markets and International Equity
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and International 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 International 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 International Equity, you can compare the effects of market volatilities on Emerging Markets and International 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 International Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and International Equity.
Diversification Opportunities for Emerging Markets and International Equity
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Emerging and International is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding The Emerging Markets and The International Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The International Equity 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 International Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The International Equity has no effect on the direction of Emerging Markets i.e., Emerging Markets and International Equity go up and down completely randomly.
Pair Corralation between Emerging Markets and International Equity
Assuming the 90 days horizon The Emerging Markets is expected to under-perform the International Equity. But the mutual fund apears to be less risky and, when comparing its historical volatility, The Emerging Markets is 1.03 times less risky than International Equity. The mutual fund trades about -0.09 of its potential returns per unit of risk. The The International Equity is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest 1,422 in The International Equity on October 31, 2024 and sell it today you would lose (90.00) from holding The International Equity or give up 6.33% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Emerging Markets vs. The International Equity
Performance |
| Timeline |
| Emerging Markets |
| The International Equity |
Emerging Markets and International Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and International Equity
The main advantage of trading using opposite Emerging Markets and International Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, International 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 International Equity will offset losses from the drop in International Equity's long position.| Emerging Markets vs. Rbb Fund | Emerging Markets vs. Qs Large Cap | Emerging Markets vs. Fwnhtx | Emerging Markets vs. Arrow Managed Futures |
| International Equity vs. The Eafe Pure | International Equity vs. The Long Term | International Equity vs. Baillie Gifford International | International Equity vs. Baillie Gifford International |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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