Correlation Between Emerging Markets and Global Advantage
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Global Advantage 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 Emerging Markets and Global Advantage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emerging Markets Equity and Global Advantage Portfolio, you can compare the effects of market volatilities on Emerging Markets and Global Advantage 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 Emerging Markets with a short position of Global Advantage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Global Advantage.
Diversification Opportunities for Emerging Markets and Global Advantage
-0.13 | Correlation Coefficient |
Good diversification
The 3 months correlation between Emerging and Global is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Equity and Global Advantage Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Advantage Por and Emerging Markets 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 Emerging Markets Equity are associated (or correlated) with Global Advantage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Advantage Por has no effect on the direction of Emerging Markets i.e., Emerging Markets and Global Advantage go up and down completely randomly.
Pair Corralation between Emerging Markets and Global Advantage
Assuming the 90 days horizon Emerging Markets Equity is expected to under-perform the Global Advantage. But the mutual fund apears to be less risky and, when comparing its historical volatility, Emerging Markets Equity is 2.19 times less risky than Global Advantage. The mutual fund trades about -0.16 of its potential returns per unit of risk. The Global Advantage Portfolio is currently generating about 0.53 of returns per unit of risk over similar time horizon. If you would invest 1,485 in Global Advantage Portfolio on September 1, 2024 and sell it today you would earn a total of 338.00 from holding Global Advantage Portfolio or generate 22.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerging Markets Equity vs. Global Advantage Portfolio
Performance |
| Timeline |
| Emerging Markets Equity |
| Global Advantage Por |
Emerging Markets and Global Advantage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and Global Advantage
The main advantage of trading using opposite Emerging Markets and Global Advantage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Global Advantage 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 Global Advantage will offset losses from the drop in Global Advantage's long position.| Emerging Markets vs. International Equity Portfolio | Emerging Markets vs. Municipal Bond Fund | Emerging Markets vs. Global Advantage Portfolio | Emerging Markets vs. Advantage Portfolio Class |
| Global Advantage vs. Emerging Markets Equity | Global Advantage vs. Global Fixed Income | Global Advantage vs. Global Fixed Income | Global Advantage vs. Global Fixed Income |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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