Correlation Between Emerging Markets and Real Assets
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Real Assets 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 Real Assets 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 Real Assets Portfolio, you can compare the effects of market volatilities on Emerging Markets and Real Assets 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 Real Assets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Real Assets.
Diversification Opportunities for Emerging Markets and Real Assets
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Emerging and REAL is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Equity and Real Assets Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Assets Portfolio 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 Real Assets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Real Assets Portfolio has no effect on the direction of Emerging Markets i.e., Emerging Markets and Real Assets go up and down completely randomly.
Pair Corralation between Emerging Markets and Real Assets
Assuming the 90 days horizon Emerging Markets Equity is expected to under-perform the Real Assets. In addition to that, Emerging Markets is 1.49 times more volatile than Real Assets Portfolio. It trades about -0.16 of its total potential returns per unit of risk. Real Assets Portfolio is currently generating about -0.03 per unit of volatility. If you would invest 1,121 in Real Assets Portfolio on September 1, 2024 and sell it today you would lose (4.00) from holding Real Assets Portfolio or give up 0.36% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerging Markets Equity vs. Real Assets Portfolio
Performance |
| Timeline |
| Emerging Markets Equity |
| Real Assets Portfolio |
Emerging Markets and Real Assets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and Real Assets
The main advantage of trading using opposite Emerging Markets and Real Assets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Real Assets 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 Real Assets will offset losses from the drop in Real Assets' 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 |
| Real Assets vs. Emerging Markets Equity | Real Assets vs. Global Fixed Income | Real Assets vs. Global Fixed Income | Real Assets 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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