Correlation Between Income Growth and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Income Growth and Emerging Markets 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 Income Growth and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Income Growth Fund and Emerging Markets Fund, you can compare the effects of market volatilities on Income Growth and Emerging Markets 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 Income Growth with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Growth and Emerging Markets.
Diversification Opportunities for Income Growth and Emerging Markets
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Income and Emerging is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Income Growth Fund and Emerging Markets Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets and Income Growth 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 Income Growth Fund are associated (or correlated) with Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets has no effect on the direction of Income Growth i.e., Income Growth and Emerging Markets go up and down completely randomly.
Pair Corralation between Income Growth and Emerging Markets
Assuming the 90 days horizon Income Growth Fund is expected to generate 0.97 times more return on investment than Emerging Markets. However, Income Growth Fund is 1.03 times less risky than Emerging Markets. It trades about 0.28 of its potential returns per unit of risk. Emerging Markets Fund is currently generating about -0.15 per unit of risk. If you would invest 3,747 in Income Growth Fund on August 28, 2024 and sell it today you would earn a total of 189.00 from holding Income Growth Fund or generate 5.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Income Growth Fund vs. Emerging Markets Fund
Performance |
| Timeline |
| Income Growth |
| Emerging Markets |
Income Growth and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Income Growth and Emerging Markets
The main advantage of trading using opposite Income Growth and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Income Growth position performs unexpectedly, Emerging Markets 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 Emerging Markets will offset losses from the drop in Emerging Markets' long position.| Income Growth vs. International Growth Fund | Income Growth vs. Growth Fund Investor | Income Growth vs. Ultra Fund Investor | Income Growth vs. Strategic Allocation Aggressive |
| Emerging Markets vs. Heritage Fund Investor | Emerging Markets vs. Real Estate Fund | Emerging Markets vs. Global Growth Fund | Emerging Markets vs. Utilities Fund Investor |
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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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