Correlation Between Emerging Markets and Eafe Choice
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Eafe Choice 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 Eafe Choice 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 Eafe Choice, you can compare the effects of market volatilities on Emerging Markets and Eafe Choice 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 Eafe Choice. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Eafe Choice.
Diversification Opportunities for Emerging Markets and Eafe Choice
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Emerging and Eafe is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding The Emerging Markets and The Eafe Choice in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eafe Choice 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 Eafe Choice. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eafe Choice has no effect on the direction of Emerging Markets i.e., Emerging Markets and Eafe Choice go up and down completely randomly.
Pair Corralation between Emerging Markets and Eafe Choice
Assuming the 90 days horizon The Emerging Markets is expected to generate 1.2 times more return on investment than Eafe Choice. However, Emerging Markets is 1.2 times more volatile than The Eafe Choice. It trades about 0.02 of its potential returns per unit of risk. The Eafe Choice is currently generating about -0.01 per unit of risk. If you would invest 2,025 in The Emerging Markets on September 2, 2024 and sell it today you would earn a total of 37.00 from holding The Emerging Markets or generate 1.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Emerging Markets vs. The Eafe Choice
Performance |
| Timeline |
| Emerging Markets |
| Eafe Choice |
Emerging Markets and Eafe Choice Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and Eafe Choice
The main advantage of trading using opposite Emerging Markets and Eafe Choice positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Eafe Choice 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 Eafe Choice will offset losses from the drop in Eafe Choice's long position.| Emerging Markets vs. The Eafe Pure | Emerging Markets vs. The Long Term | Emerging Markets vs. Baillie Gifford International | Emerging Markets vs. Baillie Gifford International |
| Eafe Choice vs. Aqr Diversified Arbitrage | Eafe Choice vs. Prudential Core Conservative | Eafe Choice vs. Jhancock Diversified Macro | Eafe Choice vs. Calvert Conservative 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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