Correlation Between Long-term and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Long-term 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 Long-term and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Long Term Government Fund and Emerging Markets Bond, you can compare the effects of market volatilities on Long-term 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 Long-term with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Long-term and Emerging Markets.
Diversification Opportunities for Long-term and Emerging Markets
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Long-term and Emerging is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Long Term Government Fund and Emerging Markets Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Bond and Long-term 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 Long Term Government Fund 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 Bond has no effect on the direction of Long-term i.e., Long-term and Emerging Markets go up and down completely randomly.
Pair Corralation between Long-term and Emerging Markets
Assuming the 90 days horizon Long Term Government Fund is expected to generate 35.01 times more return on investment than Emerging Markets. However, Long-term is 35.01 times more volatile than Emerging Markets Bond. It trades about 0.03 of its potential returns per unit of risk. Emerging Markets Bond is currently generating about 0.1 per unit of risk. If you would invest 1,486 in Long Term Government Fund on August 30, 2024 and sell it today you would lose (47.00) from holding Long Term Government Fund or give up 3.16% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Long Term Government Fund vs. Emerging Markets Bond
Performance |
| Timeline |
| Long Term Government |
| Emerging Markets Bond |
Long-term and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Long-term and Emerging Markets
The main advantage of trading using opposite Long-term and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Long-term 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.| Long-term vs. Fidelity Advisor Technology | Long-term vs. Janus Global Technology | Long-term vs. Allianzgi Technology Fund | Long-term vs. Invesco Technology Fund |
| Emerging Markets vs. Astor Longshort Fund | Emerging Markets vs. Barings Active Short | Emerging Markets vs. Vanguard Short Term Federal | Emerging Markets vs. Aqr Long Short Equity |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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