Correlation Between Emerging Markets and Asia Opportunity
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Asia Opportunity 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 Asia Opportunity 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 Asia Opportunity Portfolio, you can compare the effects of market volatilities on Emerging Markets and Asia Opportunity 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 Asia Opportunity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Asia Opportunity.
Diversification Opportunities for Emerging Markets and Asia Opportunity
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Emerging and Asia is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Equity and Asia Opportunity Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asia Opportunity 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 Asia Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asia Opportunity Por has no effect on the direction of Emerging Markets i.e., Emerging Markets and Asia Opportunity go up and down completely randomly.
Pair Corralation between Emerging Markets and Asia Opportunity
Assuming the 90 days horizon Emerging Markets Equity is expected to generate 0.73 times more return on investment than Asia Opportunity. However, Emerging Markets Equity is 1.37 times less risky than Asia Opportunity. It trades about 0.03 of its potential returns per unit of risk. Asia Opportunity Portfolio is currently generating about 0.01 per unit of risk. If you would invest 1,240 in Emerging Markets Equity on August 31, 2024 and sell it today you would earn a total of 144.00 from holding Emerging Markets Equity or generate 11.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerging Markets Equity vs. Asia Opportunity Portfolio
Performance |
| Timeline |
| Emerging Markets Equity |
| Asia Opportunity Por |
Emerging Markets and Asia Opportunity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and Asia Opportunity
The main advantage of trading using opposite Emerging Markets and Asia Opportunity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Asia Opportunity 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 Asia Opportunity will offset losses from the drop in Asia Opportunity's long position.| Emerging Markets vs. Pear Tree Polaris | Emerging Markets vs. Artisan High Income | Emerging Markets vs. HUMANA INC | Emerging Markets vs. Aquagold International |
| Asia Opportunity vs. Western Asset Diversified | Asia Opportunity vs. American Century Diversified | Asia Opportunity vs. Principal Lifetime Hybrid | Asia Opportunity vs. Harbor Diversified International |
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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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