Correlation Between Global Franchise and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Global Franchise 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 Franchise 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 Franchise Portfolio and Emerging Markets Equity, you can compare the effects of market volatilities on Global Franchise 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 Franchise with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Franchise and Emerging Markets.
Diversification Opportunities for Global Franchise and Emerging Markets
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Global and Emerging is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Global Franchise 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 Franchise 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 Franchise 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 Franchise i.e., Global Franchise and Emerging Markets go up and down completely randomly.
Pair Corralation between Global Franchise and Emerging Markets
Assuming the 90 days horizon Global Franchise Portfolio is expected to generate 0.65 times more return on investment than Emerging Markets. However, Global Franchise Portfolio is 1.54 times less risky than Emerging Markets. It trades about 0.02 of its potential returns per unit of risk. Emerging Markets Equity is currently generating about -0.23 per unit of risk. If you would invest 3,831 in Global Franchise Portfolio on August 29, 2024 and sell it today you would earn a total of 9.00 from holding Global Franchise Portfolio or generate 0.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Global Franchise Portfolio vs. Emerging Markets Equity
Performance |
| Timeline |
| Global Franchise Por |
| Emerging Markets Equity |
Global Franchise and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Global Franchise and Emerging Markets
The main advantage of trading using opposite Global Franchise and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Franchise 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 Franchise vs. Emerging Markets Equity | Global Franchise vs. Global Fixed Income | Global Franchise vs. Global Fixed Income | Global Franchise vs. Global Fixed Income |
| Emerging Markets vs. Global Fixed Income | Emerging Markets vs. Global Fixed Income | Emerging Markets vs. Global Fixed Income | Emerging Markets vs. Global E Portfolio |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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