Correlation Between Emerging Markets and Capital Group
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Capital Group 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 Emerging Markets and Capital Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emerging Markets Growth and Capital Group Equity, you can compare the effects of market volatilities on Emerging Markets and Capital Group 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 Emerging Markets with a short position of Capital Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Capital Group.
Diversification Opportunities for Emerging Markets and Capital Group
0.42 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Emerging and Capital is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Growth and Capital Group Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Group Equity and Emerging Markets 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 Emerging Markets Growth are associated (or correlated) with Capital Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Group Equity has no effect on the direction of Emerging Markets i.e., Emerging Markets and Capital Group go up and down completely randomly.
Pair Corralation between Emerging Markets and Capital Group
Assuming the 90 days horizon Emerging Markets Growth is expected to under-perform the Capital Group. But the mutual fund apears to be less risky and, when comparing its historical volatility, Emerging Markets Growth is 1.18 times less risky than Capital Group. The mutual fund trades about -0.19 of its potential returns per unit of risk. The Capital Group Equity is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 3,648 in Capital Group Equity on August 28, 2024 and sell it today you would earn a total of 109.00 from holding Capital Group Equity or generate 2.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerging Markets Growth vs. Capital Group Equity
Performance |
| Timeline |
| Emerging Markets Growth |
| Capital Group Equity |
Emerging Markets and Capital Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and Capital Group
The main advantage of trading using opposite Emerging Markets and Capital Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Capital Group 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 Capital Group will offset losses from the drop in Capital Group's long position.| Emerging Markets vs. Capital Group Equity | Emerging Markets vs. Emerging Markets Growth | Emerging Markets vs. Capital Group California | Emerging Markets vs. Capital Group California |
| Capital Group vs. Emerging Markets Growth | Capital Group vs. Emerging Markets Growth | Capital Group vs. Emerging Markets Growth | Capital Group vs. Capital Group California |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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