Correlation Between International Core and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both International Core 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 Core and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International E Equity and Emerging Markets E, you can compare the effects of market volatilities on International Core 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 Core with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Core and Emerging Markets.
Diversification Opportunities for International Core and Emerging Markets
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between INTERNATIONAL and Emerging is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding International E Equity and Emerging Markets E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets E and International Core 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 International E 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 E has no effect on the direction of International Core i.e., International Core and Emerging Markets go up and down completely randomly.
Pair Corralation between International Core and Emerging Markets
Assuming the 90 days horizon International E Equity is expected to generate 0.92 times more return on investment than Emerging Markets. However, International E Equity is 1.09 times less risky than Emerging Markets. It trades about 0.26 of its potential returns per unit of risk. Emerging Markets E is currently generating about 0.03 per unit of risk. If you would invest 1,539 in International E Equity on November 3, 2024 and sell it today you would earn a total of 59.00 from holding International E Equity or generate 3.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
International E Equity vs. Emerging Markets E
Performance |
| Timeline |
| International E Equity |
| Emerging Markets E |
International Core and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Core and Emerging Markets
The main advantage of trading using opposite International Core and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Core 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 Core vs. Emerging Markets E | International Core vs. Us E Equity | International Core vs. Us E Equity | International Core vs. Dfa Real Estate |
| Emerging Markets vs. International E Equity | Emerging Markets vs. Dfa International Small | Emerging Markets vs. Us E Equity | Emerging Markets vs. Us Large Cap |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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