Correlation Between Ultra Short and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Ultra Short 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 Ultra Short and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ultra Short Income and Emerging Markets Equity, you can compare the effects of market volatilities on Ultra Short 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 Ultra Short with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultra Short and Emerging Markets.
Diversification Opportunities for Ultra Short and Emerging Markets
-0.36 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Ultra and Emerging is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Short Income 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 Ultra Short 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 Ultra Short Income 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 Ultra Short i.e., Ultra Short and Emerging Markets go up and down completely randomly.
Pair Corralation between Ultra Short and Emerging Markets
Assuming the 90 days horizon Ultra Short Income is expected to generate 0.14 times more return on investment than Emerging Markets. However, Ultra Short Income is 7.33 times less risky than Emerging Markets. It trades about 0.2 of its potential returns per unit of risk. Emerging Markets Equity is currently generating about -0.07 per unit of risk. If you would invest 995.00 in Ultra Short Income on September 13, 2024 and sell it today you would earn a total of 4.00 from holding Ultra Short Income or generate 0.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ultra Short Income vs. Emerging Markets Equity
Performance |
| Timeline |
| Ultra Short Income |
| Emerging Markets Equity |
Ultra Short and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ultra Short and Emerging Markets
The main advantage of trading using opposite Ultra Short and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ultra Short 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.| Ultra Short vs. Emerging Markets Equity | Ultra Short vs. Global Fixed Income | Ultra Short vs. Global Fixed Income | Ultra Short vs. Global Fixed Income |
| Emerging Markets vs. Smallcap Growth Fund | Emerging Markets vs. L Abbett Growth | Emerging Markets vs. Franklin Growth Opportunities | Emerging Markets vs. Praxis Growth Index |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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