Correlation Between Inverse Emerging and Extended Market
Can any of the company-specific risk be diversified away by investing in both Inverse Emerging and Extended Market 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 Inverse Emerging and Extended Market into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Inverse Emerging Markets and Extended Market Index, you can compare the effects of market volatilities on Inverse Emerging and Extended Market 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 Inverse Emerging with a short position of Extended Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Emerging and Extended Market.
Diversification Opportunities for Inverse Emerging and Extended Market
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Inverse and Extended is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Emerging Markets and Extended Market Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extended Market Index and Inverse Emerging 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 Inverse Emerging Markets are associated (or correlated) with Extended Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extended Market Index has no effect on the direction of Inverse Emerging i.e., Inverse Emerging and Extended Market go up and down completely randomly.
Pair Corralation between Inverse Emerging and Extended Market
Assuming the 90 days horizon Inverse Emerging Markets is expected to under-perform the Extended Market. In addition to that, Inverse Emerging is 1.99 times more volatile than Extended Market Index. It trades about -0.01 of its total potential returns per unit of risk. Extended Market Index is currently generating about 0.03 per unit of volatility. If you would invest 1,822 in Extended Market Index on October 20, 2024 and sell it today you would earn a total of 276.00 from holding Extended Market Index or generate 15.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Inverse Emerging Markets vs. Extended Market Index
Performance |
| Timeline |
| Inverse Emerging Markets |
| Extended Market Index |
Inverse Emerging and Extended Market Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Inverse Emerging and Extended Market
The main advantage of trading using opposite Inverse Emerging and Extended Market positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inverse Emerging position performs unexpectedly, Extended Market 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 Extended Market will offset losses from the drop in Extended Market's long position.| Inverse Emerging vs. Fidelity Flex Servative | Inverse Emerging vs. Transamerica Short Term Bond | Inverse Emerging vs. Touchstone Ultra Short | Inverse Emerging vs. Leader Short Term Bond |
| Extended Market vs. Qs Large Cap | Extended Market vs. Americafirst Large Cap | Extended Market vs. Qs Large Cap | Extended Market vs. Qs Large Cap |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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