Correlation Between Real Assets and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Real Assets 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 Real Assets and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Real Assets Portfolio and Emerging Markets Equity, you can compare the effects of market volatilities on Real Assets 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 Real Assets with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Real Assets and Emerging Markets.
Diversification Opportunities for Real Assets and Emerging Markets
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Real and Emerging is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Real Assets 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 Real Assets 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 Real Assets 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 Real Assets i.e., Real Assets and Emerging Markets go up and down completely randomly.
Pair Corralation between Real Assets and Emerging Markets
Assuming the 90 days horizon Real Assets Portfolio is expected to generate 0.49 times more return on investment than Emerging Markets. However, Real Assets Portfolio is 2.03 times less risky than Emerging Markets. It trades about 0.11 of its potential returns per unit of risk. Emerging Markets Equity is currently generating about -0.2 per unit of risk. If you would invest 1,108 in Real Assets Portfolio on September 12, 2024 and sell it today you would earn a total of 10.00 from holding Real Assets Portfolio or generate 0.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Real Assets Portfolio vs. Emerging Markets Equity
Performance |
| Timeline |
| Real Assets Portfolio |
| Emerging Markets Equity |
Real Assets and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Real Assets and Emerging Markets
The main advantage of trading using opposite Real Assets and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Real Assets 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.| Real Assets vs. Intermediate Government Bond | Real Assets vs. Dws Government Money | Real Assets vs. Dreyfus Government Cash | Real Assets vs. Ridgeworth Seix Government |
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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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