Correlation Between Emerging Markets and American Funds
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and American Funds 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 American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emerging Markets Portfolio and American Funds New, you can compare the effects of market volatilities on Emerging Markets and American Funds 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 American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and American Funds.
Diversification Opportunities for Emerging Markets and American Funds
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Emerging and American is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Portfolio and American Funds New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds New 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 Portfolio are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds New has no effect on the direction of Emerging Markets i.e., Emerging Markets and American Funds go up and down completely randomly.
Pair Corralation between Emerging Markets and American Funds
Assuming the 90 days horizon Emerging Markets Portfolio is expected to generate 1.14 times more return on investment than American Funds. However, Emerging Markets is 1.14 times more volatile than American Funds New. It trades about 0.14 of its potential returns per unit of risk. American Funds New is currently generating about 0.09 per unit of risk. If you would invest 2,211 in Emerging Markets Portfolio on September 13, 2024 and sell it today you would earn a total of 38.00 from holding Emerging Markets Portfolio or generate 1.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerging Markets Portfolio vs. American Funds New
Performance |
| Timeline |
| Emerging Markets Por |
| American Funds New |
Emerging Markets and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and American Funds
The main advantage of trading using opposite Emerging Markets and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.| Emerging Markets vs. Emerging Markets Equity | Emerging Markets vs. Global Fixed Income | Emerging Markets vs. Global Fixed Income | Emerging Markets vs. Global Fixed Income |
| American Funds vs. Income Fund Of | American Funds vs. New World Fund | American Funds vs. American Mutual Fund | American Funds vs. American Mutual 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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