Correlation Between Emerging Markets and International Equity
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and International Equity 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 International Equity 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 International Equity Portfolio, you can compare the effects of market volatilities on Emerging Markets and International Equity 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 International Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and International Equity.
Diversification Opportunities for Emerging Markets and International Equity
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Emerging and International is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Portfolio and International Equity Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity 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 International Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Equity has no effect on the direction of Emerging Markets i.e., Emerging Markets and International Equity go up and down completely randomly.
Pair Corralation between Emerging Markets and International Equity
Assuming the 90 days horizon Emerging Markets Portfolio is expected to generate 1.02 times more return on investment than International Equity. However, Emerging Markets is 1.02 times more volatile than International Equity Portfolio. It trades about 0.06 of its potential returns per unit of risk. International Equity Portfolio is currently generating about 0.02 per unit of risk. If you would invest 1,762 in Emerging Markets Portfolio on August 26, 2024 and sell it today you would earn a total of 352.00 from holding Emerging Markets Portfolio or generate 19.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerging Markets Portfolio vs. International Equity Portfolio
Performance |
| Timeline |
| Emerging Markets Por |
| International Equity |
Emerging Markets and International Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and International Equity
The main advantage of trading using opposite Emerging Markets and International Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, International Equity 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 International Equity will offset losses from the drop in International Equity's 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 |
| International Equity vs. T Rowe Price | International Equity vs. Causeway International Value | International Equity vs. Short Term Fund Administrative | International Equity vs. Miller Opportunity Trust |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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