Correlation Between International Equity and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both International Equity 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 International Equity and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The International Equity and The Emerging Markets, you can compare the effects of market volatilities on International Equity 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 International Equity with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Emerging Markets.
Diversification Opportunities for International Equity and Emerging Markets
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between International and Emerging is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding The International Equity and The Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets and International Equity 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 International Equity 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 International Equity i.e., International Equity and Emerging Markets go up and down completely randomly.
Pair Corralation between International Equity and Emerging Markets
Assuming the 90 days horizon The International Equity is expected to generate 0.93 times more return on investment than Emerging Markets. However, The International Equity is 1.07 times less risky than Emerging Markets. It trades about 0.03 of its potential returns per unit of risk. The Emerging Markets is currently generating about 0.03 per unit of risk. If you would invest 1,175 in The International Equity on November 1, 2024 and sell it today you would earn a total of 172.00 from holding The International Equity or generate 14.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
The International Equity vs. The Emerging Markets
Performance |
| Timeline |
| The International Equity |
| Emerging Markets |
International Equity and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Equity and Emerging Markets
The main advantage of trading using opposite International Equity and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity 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.| International Equity vs. Ab Bond Inflation | International Equity vs. Ab Bond Inflation | International Equity vs. Ab Bond Inflation | International Equity vs. Multisector Bond Sma |
| Emerging Markets vs. The Eafe Pure | Emerging Markets vs. The Long Term | Emerging Markets vs. Baillie Gifford International | Emerging Markets 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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