Correlation Between Capital Group and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Capital Group 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 Capital Group and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Capital Group California and Emerging Markets Growth, you can compare the effects of market volatilities on Capital Group 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 Capital Group with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Group and Emerging Markets.
Diversification Opportunities for Capital Group and Emerging Markets
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Capital and Emerging is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Capital Group California and Emerging Markets Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Growth and Capital Group 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 Capital Group California 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 Growth has no effect on the direction of Capital Group i.e., Capital Group and Emerging Markets go up and down completely randomly.
Pair Corralation between Capital Group and Emerging Markets
Assuming the 90 days horizon Capital Group is expected to generate 1.74 times less return on investment than Emerging Markets. But when comparing it to its historical volatility, Capital Group California is 6.04 times less risky than Emerging Markets. It trades about 0.07 of its potential returns per unit of risk. Emerging Markets Growth is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 651.00 in Emerging Markets Growth on August 31, 2024 and sell it today you would earn a total of 42.00 from holding Emerging Markets Growth or generate 6.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Capital Group California vs. Emerging Markets Growth
Performance |
| Timeline |
| Capital Group California |
| Emerging Markets Growth |
Capital Group and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital Group and Emerging Markets
The main advantage of trading using opposite Capital Group and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Group 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.| Capital Group vs. Siit Emerging Markets | Capital Group vs. Origin Emerging Markets | Capital Group vs. Angel Oak Multi Strategy | Capital Group vs. Franklin Emerging Market |
| Emerging Markets vs. Pioneer High Yield | Emerging Markets vs. Siit High Yield | Emerging Markets vs. T Rowe Price | Emerging Markets vs. Federated Institutional High |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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