Correlation Between Tax-managed and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Tax-managed 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 Tax-managed and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tax Managed Large Cap and Emerging Markets Fund, you can compare the effects of market volatilities on Tax-managed 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 Tax-managed with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax-managed and Emerging Markets.
Diversification Opportunities for Tax-managed and Emerging Markets
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Tax-managed and Emerging is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Tax Managed Large Cap and Emerging Markets Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets and Tax-managed 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 Tax Managed Large Cap 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 has no effect on the direction of Tax-managed i.e., Tax-managed and Emerging Markets go up and down completely randomly.
Pair Corralation between Tax-managed and Emerging Markets
Assuming the 90 days horizon Tax Managed Large Cap is expected to generate 0.98 times more return on investment than Emerging Markets. However, Tax Managed Large Cap is 1.02 times less risky than Emerging Markets. It trades about 0.36 of its potential returns per unit of risk. Emerging Markets Fund is currently generating about -0.12 per unit of risk. If you would invest 8,302 in Tax Managed Large Cap on September 1, 2024 and sell it today you would earn a total of 477.00 from holding Tax Managed Large Cap or generate 5.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Tax Managed Large Cap vs. Emerging Markets Fund
Performance |
| Timeline |
| Tax Managed Large |
| Emerging Markets |
Tax-managed and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tax-managed and Emerging Markets
The main advantage of trading using opposite Tax-managed and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tax-managed 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.| Tax-managed vs. International Developed Markets | Tax-managed vs. Global Real Estate | Tax-managed vs. Global Real Estate | Tax-managed vs. Global Real Estate |
| Emerging Markets vs. International Developed Markets | Emerging Markets vs. Global Real Estate | Emerging Markets vs. Global Real Estate | Emerging Markets 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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