Correlation Between Emerging Markets and Equity Growth
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Equity Growth 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 Emerging Markets and Equity Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emerging Markets Fund and Equity Growth Strategy, you can compare the effects of market volatilities on Emerging Markets and Equity Growth 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 Emerging Markets with a short position of Equity Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Equity Growth.
Diversification Opportunities for Emerging Markets and Equity Growth
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Emerging and Equity is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Fund and Equity Growth Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth Strategy and Emerging Markets 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 Emerging Markets Fund are associated (or correlated) with Equity Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth Strategy has no effect on the direction of Emerging Markets i.e., Emerging Markets and Equity Growth go up and down completely randomly.
Pair Corralation between Emerging Markets and Equity Growth
Assuming the 90 days horizon Emerging Markets Fund is expected to under-perform the Equity Growth. In addition to that, Emerging Markets is 1.43 times more volatile than Equity Growth Strategy. It trades about -0.12 of its total potential returns per unit of risk. Equity Growth Strategy is currently generating about 0.3 per unit of volatility. If you would invest 1,518 in Equity Growth Strategy on September 1, 2024 and sell it today you would earn a total of 52.00 from holding Equity Growth Strategy or generate 3.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Emerging Markets Fund vs. Equity Growth Strategy
Performance |
| Timeline |
| Emerging Markets |
| Equity Growth Strategy |
Emerging Markets and Equity Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and Equity Growth
The main advantage of trading using opposite Emerging Markets and Equity Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Equity Growth 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 Equity Growth will offset losses from the drop in Equity Growth's long position.| Emerging Markets vs. International Developed Markets | Emerging Markets vs. Global Real Estate | Emerging Markets vs. Global Real Estate | Emerging Markets vs. Global Real Estate |
| Equity Growth vs. International Developed Markets | Equity Growth vs. Global Real Estate | Equity Growth vs. Global Real Estate | Equity Growth vs. Global Real Estate |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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