Correlation Between General Money and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both General Money 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 General Money and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Money Market and Emerging Markets Equity, you can compare the effects of market volatilities on General Money 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 General Money with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of General Money and Emerging Markets.
Diversification Opportunities for General Money and Emerging Markets
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between General and Emerging is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding General Money Market and Emerging Markets Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Equity and General Money 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 General Money Market 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 Equity has no effect on the direction of General Money i.e., General Money and Emerging Markets go up and down completely randomly.
Pair Corralation between General Money and Emerging Markets
Assuming the 90 days horizon General Money is expected to generate 1.85 times less return on investment than Emerging Markets. But when comparing it to its historical volatility, General Money Market is 1.07 times less risky than Emerging Markets. It trades about 0.02 of its potential returns per unit of risk. Emerging Markets Equity is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 1,159 in Emerging Markets Equity on September 5, 2024 and sell it today you would earn a total of 206.00 from holding Emerging Markets Equity or generate 17.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 98.41% |
| Values | Daily Returns |
General Money Market vs. Emerging Markets Equity
Performance |
| Timeline |
| General Money Market |
| Emerging Markets Equity |
General Money and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with General Money and Emerging Markets
The main advantage of trading using opposite General Money and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Money 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.| General Money vs. Ab Global Bond | General Money vs. Qs Global Equity | General Money vs. Mirova Global Green | General Money vs. Artisan Global Unconstrained |
| Emerging Markets vs. Qs Large Cap | Emerging Markets vs. Fidelity Series 1000 | Emerging Markets vs. Qs Large Cap | Emerging Markets vs. Aqr 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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