Correlation Between Us Micro and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Us Micro 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 Us Micro and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Us Micro Cap and Emerging Markets Portfolio, you can compare the effects of market volatilities on Us Micro 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 Us Micro with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Us Micro and Emerging Markets.
Diversification Opportunities for Us Micro and Emerging Markets
-0.5 | Correlation Coefficient |
Very good diversification
The 3 months correlation between DFSCX and Emerging is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Us Micro Cap and Emerging Markets Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Por and Us Micro 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 Us Micro Cap 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 Por has no effect on the direction of Us Micro i.e., Us Micro and Emerging Markets go up and down completely randomly.
Pair Corralation between Us Micro and Emerging Markets
Assuming the 90 days horizon Us Micro Cap is expected to under-perform the Emerging Markets. In addition to that, Us Micro is 1.72 times more volatile than Emerging Markets Portfolio. It trades about -0.03 of its total potential returns per unit of risk. Emerging Markets Portfolio is currently generating about 0.1 per unit of volatility. If you would invest 2,943 in Emerging Markets Portfolio on September 13, 2024 and sell it today you would earn a total of 33.00 from holding Emerging Markets Portfolio or generate 1.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Us Micro Cap vs. Emerging Markets Portfolio
Performance |
| Timeline |
| Us Micro Cap |
| Emerging Markets Por |
Us Micro and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Us Micro and Emerging Markets
The main advantage of trading using opposite Us Micro and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Us Micro 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.| Us Micro vs. Us Small Cap | Us Micro vs. International Small Pany | Us Micro vs. Dfa International Small | Us Micro vs. Us Large Cap |
| Emerging Markets vs. International Small Pany | Emerging Markets vs. Dfa International Small | Emerging Markets vs. Dfa International Value | 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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