Correlation Between Global Real and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Global Real 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 Global Real and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global Real Estate and Emerging Markets Fund, you can compare the effects of market volatilities on Global Real 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 Global Real with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Real and Emerging Markets.
Diversification Opportunities for Global Real and Emerging Markets
0.12 | Correlation Coefficient |
Average diversification
The 3 months correlation between Global and Emerging is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Global Real Estate and Emerging Markets Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets and Global Real 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 Global Real Estate 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 Global Real i.e., Global Real and Emerging Markets go up and down completely randomly.
Pair Corralation between Global Real and Emerging Markets
Assuming the 90 days horizon Global Real Estate is expected to generate 0.99 times more return on investment than Emerging Markets. However, Global Real Estate is 1.01 times less risky than Emerging Markets. It trades about 0.14 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 3,078 in Global Real Estate on September 1, 2024 and sell it today you would earn a total of 73.00 from holding Global Real Estate or generate 2.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Global Real Estate vs. Emerging Markets Fund
Performance |
| Timeline |
| Global Real Estate |
| Emerging Markets |
Global Real and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Global Real and Emerging Markets
The main advantage of trading using opposite Global Real and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Real 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.| Global Real vs. Massmutual Premier Diversified | Global Real vs. Aqr Diversified Arbitrage | Global Real vs. Calvert Conservative Allocation | Global Real vs. Huber Capital Diversified |
| 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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