Correlation Between Commodities Strategy and The Emerging
Can any of the company-specific risk be diversified away by investing in both Commodities Strategy and The Emerging 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 Commodities Strategy and The Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Commodities Strategy Fund and The Emerging Markets, you can compare the effects of market volatilities on Commodities Strategy and The Emerging 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 Commodities Strategy with a short position of The Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commodities Strategy and The Emerging.
Diversification Opportunities for Commodities Strategy and The Emerging
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Commodities and The is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Commodities Strategy Fund and The Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets and Commodities Strategy 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 Commodities Strategy Fund are associated (or correlated) with The Emerging. 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 Commodities Strategy i.e., Commodities Strategy and The Emerging go up and down completely randomly.
Pair Corralation between Commodities Strategy and The Emerging
Assuming the 90 days horizon Commodities Strategy Fund is expected to generate 1.25 times more return on investment than The Emerging. However, Commodities Strategy is 1.25 times more volatile than The Emerging Markets. It trades about -0.08 of its potential returns per unit of risk. The Emerging Markets is currently generating about -0.18 per unit of risk. If you would invest 3,043 in Commodities Strategy Fund on September 3, 2024 and sell it today you would lose (116.00) from holding Commodities Strategy Fund or give up 3.81% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Commodities Strategy Fund vs. The Emerging Markets
Performance |
| Timeline |
| Commodities Strategy |
| Emerging Markets |
Commodities Strategy and The Emerging Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Commodities Strategy and The Emerging
The main advantage of trading using opposite Commodities Strategy and The Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commodities Strategy position performs unexpectedly, The Emerging 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 The Emerging will offset losses from the drop in The Emerging's long position.The idea behind Commodities Strategy Fund and The Emerging Markets 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.
| The Emerging vs. Vanguard Total Stock | The Emerging vs. Vanguard 500 Index | The Emerging vs. Vanguard Total Stock | The Emerging vs. Vanguard Total Stock |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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