Correlation Between Emerging Markets and Global Hard
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Global Hard 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 Global Hard into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emerging Markets Fund and Global Hard Assets, you can compare the effects of market volatilities on Emerging Markets and Global Hard 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 Global Hard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Global Hard.
Diversification Opportunities for Emerging Markets and Global Hard
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Emerging and Global is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Fund and Global Hard Assets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Hard Assets 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 Fund are associated (or correlated) with Global Hard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Hard Assets has no effect on the direction of Emerging Markets i.e., Emerging Markets and Global Hard go up and down completely randomly.
Pair Corralation between Emerging Markets and Global Hard
Assuming the 90 days horizon Emerging Markets is expected to generate 1.03 times less return on investment than Global Hard. But when comparing it to its historical volatility, Emerging Markets Fund is 1.2 times less risky than Global Hard. It trades about 0.04 of its potential returns per unit of risk. Global Hard Assets is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 3,133 in Global Hard Assets on September 1, 2024 and sell it today you would earn a total of 284.00 from holding Global Hard Assets or generate 9.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerging Markets Fund vs. Global Hard Assets
Performance |
| Timeline |
| Emerging Markets |
| Global Hard Assets |
Emerging Markets and Global Hard Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and Global Hard
The main advantage of trading using opposite Emerging Markets and Global Hard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Global Hard 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 Global Hard will offset losses from the drop in Global Hard's long position.The idea behind Emerging Markets Fund and Global Hard Assets pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
| Global Hard vs. Unconstrained Emerging Markets | Global Hard vs. Unconstrained Emerging Markets | Global Hard vs. Unconstrained Emerging Markets | Global Hard vs. Emerging Markets Fund |
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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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