Correlation Between New World and Brandes Emerging
Can any of the company-specific risk be diversified away by investing in both New World and Brandes Emerging 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 New World and Brandes Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New World Fund and Brandes Emerging Markets, you can compare the effects of market volatilities on New World and Brandes Emerging 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 New World with a short position of Brandes Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of New World and Brandes Emerging.
Diversification Opportunities for New World and Brandes Emerging
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between New and Brandes is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding New World Fund and Brandes Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brandes Emerging Markets and New World 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 New World Fund are associated (or correlated) with Brandes Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brandes Emerging Markets has no effect on the direction of New World i.e., New World and Brandes Emerging go up and down completely randomly.
Pair Corralation between New World and Brandes Emerging
Assuming the 90 days horizon New World is expected to generate 1.27 times less return on investment than Brandes Emerging. But when comparing it to its historical volatility, New World Fund is 1.2 times less risky than Brandes Emerging. It trades about 0.06 of its potential returns per unit of risk. Brandes Emerging Markets is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 666.00 in Brandes Emerging Markets on August 26, 2024 and sell it today you would earn a total of 190.00 from holding Brandes Emerging Markets or generate 28.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
New World Fund vs. Brandes Emerging Markets
Performance |
| Timeline |
| New World Fund |
| Brandes Emerging Markets |
New World and Brandes Emerging Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New World and Brandes Emerging
The main advantage of trading using opposite New World and Brandes Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New World position performs unexpectedly, Brandes Emerging 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 Brandes Emerging will offset losses from the drop in Brandes Emerging's long position.| New World vs. Smallcap World Fund | New World vs. Investment Of America | New World vs. Europacific Growth Fund | New World vs. Capital World Growth |
| Brandes Emerging vs. Baron Emerging Markets | Brandes Emerging vs. Brandes International Equity | Brandes Emerging vs. Guggenheim Macro Opportunities | Brandes Emerging vs. Aqr Diversified Arbitrage |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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