Correlation Between FlexShares International and FlexShares Emerging
Can any of the company-specific risk be diversified away by investing in both FlexShares International and FlexShares Emerging 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 FlexShares International and FlexShares Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FlexShares International Quality and FlexShares Emerging Markets, you can compare the effects of market volatilities on FlexShares International and FlexShares Emerging 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 FlexShares International with a short position of FlexShares Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares International and FlexShares Emerging.
Diversification Opportunities for FlexShares International and FlexShares Emerging
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between FlexShares and FlexShares is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares International Quali and FlexShares Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Emerging and FlexShares International 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 FlexShares International Quality are associated (or correlated) with FlexShares Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Emerging has no effect on the direction of FlexShares International i.e., FlexShares International and FlexShares Emerging go up and down completely randomly.
Pair Corralation between FlexShares International and FlexShares Emerging
Given the investment horizon of 90 days FlexShares International Quality is expected to under-perform the FlexShares Emerging. In addition to that, FlexShares International is 1.43 times more volatile than FlexShares Emerging Markets. It trades about -0.18 of its total potential returns per unit of risk. FlexShares Emerging Markets is currently generating about -0.2 per unit of volatility. If you would invest 2,647 in FlexShares Emerging Markets on August 30, 2024 and sell it today you would lose (75.00) from holding FlexShares Emerging Markets or give up 2.83% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
FlexShares International Quali vs. FlexShares Emerging Markets
Performance |
| Timeline |
| FlexShares International |
| FlexShares Emerging |
FlexShares International and FlexShares Emerging Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FlexShares International and FlexShares Emerging
The main advantage of trading using opposite FlexShares International and FlexShares Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FlexShares International position performs unexpectedly, FlexShares Emerging 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 FlexShares Emerging will offset losses from the drop in FlexShares Emerging's long position.The idea behind FlexShares International Quality and FlexShares Emerging Markets 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.
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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