Correlation Between Global Core and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Global Core 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 Global Core and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global E Portfolio and Emerging Markets Equity, you can compare the effects of market volatilities on Global Core 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 Global Core with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Core and Emerging Markets.
Diversification Opportunities for Global Core and Emerging Markets
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Global and Emerging is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Global E Portfolio 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 Global Core 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 Global E Portfolio 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 Global Core i.e., Global Core and Emerging Markets go up and down completely randomly.
Pair Corralation between Global Core and Emerging Markets
Assuming the 90 days horizon Global E Portfolio is expected to generate 1.03 times more return on investment than Emerging Markets. However, Global Core is 1.03 times more volatile than Emerging Markets Equity. It trades about 0.24 of its potential returns per unit of risk. Emerging Markets Equity is currently generating about 0.17 per unit of risk. If you would invest 2,110 in Global E Portfolio on November 9, 2024 and sell it today you would earn a total of 98.00 from holding Global E Portfolio or generate 4.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Global E Portfolio vs. Emerging Markets Equity
Performance |
| Timeline |
| Global E Portfolio |
| Emerging Markets Equity |
Global Core and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Global Core and Emerging Markets
The main advantage of trading using opposite Global Core and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Core 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.| Global Core vs. Touchstone Large Cap | Global Core vs. Tax Managed Large Cap | Global Core vs. Fisher Large Cap | Global Core vs. Ab Large Cap |
| Emerging Markets vs. Nationwide Bailard Technology | Emerging Markets vs. Allianzgi Technology Fund | Emerging Markets vs. Science Technology Fund | Emerging Markets vs. Invesco Technology 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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