Correlation Between Mid Cap and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Mid Cap 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 Mid Cap and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mid Cap Growth and Emerging Markets Equity, you can compare the effects of market volatilities on Mid Cap 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 Mid Cap with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Emerging Markets.
Diversification Opportunities for Mid Cap and Emerging Markets
-0.04 | Correlation Coefficient |
Good diversification
The 3 months correlation between Mid and Emerging is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Growth 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 Mid Cap 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 Mid Cap Growth 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 Mid Cap i.e., Mid Cap and Emerging Markets go up and down completely randomly.
Pair Corralation between Mid Cap and Emerging Markets
Assuming the 90 days horizon Mid Cap Growth is expected to generate 2.27 times more return on investment than Emerging Markets. However, Mid Cap is 2.27 times more volatile than Emerging Markets Equity. It trades about 0.51 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 936.00 in Mid Cap Growth on August 29, 2024 and sell it today you would earn a total of 221.00 from holding Mid Cap Growth or generate 23.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Mid Cap Growth vs. Emerging Markets Equity
Performance |
| Timeline |
| Mid Cap Growth |
| Emerging Markets Equity |
Mid Cap and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mid Cap and Emerging Markets
The main advantage of trading using opposite Mid Cap and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid Cap 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.| Mid Cap vs. Pgim Conservative Retirement | Mid Cap vs. Calvert Moderate Allocation | Mid Cap vs. Target Retirement 2040 | Mid Cap vs. Franklin Moderate Allocation |
| Emerging Markets vs. Dreyfusstandish Global Fixed | Emerging Markets vs. Us Global Investors | Emerging Markets vs. T Rowe Price | Emerging Markets vs. Kinetics Global 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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