Correlation Between International Developed and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both International Developed 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 International Developed and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Developed Markets and Emerging Markets Fund, you can compare the effects of market volatilities on International Developed 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 International Developed with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Developed and Emerging Markets.
Diversification Opportunities for International Developed and Emerging Markets
0.53 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between International and Emerging is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding International Developed Market and Emerging Markets Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets and International Developed 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 International Developed Markets 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 International Developed i.e., International Developed and Emerging Markets go up and down completely randomly.
Pair Corralation between International Developed and Emerging Markets
Assuming the 90 days horizon International Developed Markets is expected to generate 0.88 times more return on investment than Emerging Markets. However, International Developed Markets is 1.13 times less risky than Emerging Markets. It trades about 0.05 of its potential returns per unit of risk. Emerging Markets Fund is currently generating about 0.04 per unit of risk. If you would invest 3,683 in International Developed Markets on September 3, 2024 and sell it today you would earn a total of 715.00 from holding International Developed Markets or generate 19.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Developed Market vs. Emerging Markets Fund
Performance |
| Timeline |
| International Developed |
| Emerging Markets |
International Developed and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Developed and Emerging Markets
The main advantage of trading using opposite International Developed and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Developed 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.The idea behind International Developed Markets and Emerging Markets Fund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
| Emerging Markets vs. Fidelity Capital Income | Emerging Markets vs. Dunham High Yield | Emerging Markets vs. Goldman Sachs High | Emerging Markets vs. American Century High |
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 Commodity Directory module to find actively traded commodities issued by global exchanges.
Other Complementary Tools
| Price Exposure Probability Analyze equity upside and downside potential for a given time horizon across multiple markets | |
| Portfolio Comparator Compare the composition, asset allocations and performance of any two portfolios in your account | |
| Financial Widgets Easily integrated Macroaxis content with over 30 different plug-and-play financial widgets | |
| Portfolio Anywhere Track or share privately all of your investments from the convenience of any device | |
| Investing Opportunities Build portfolios using our predefined set of ideas and optimize them against your investing preferences |