Correlation Between Equity Income and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Equity Income and Emerging Markets 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 Equity Income and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Equity Income Fund and Emerging Markets Fund, you can compare the effects of market volatilities on Equity Income and Emerging Markets 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 Equity Income with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Income and Emerging Markets.
Diversification Opportunities for Equity Income and Emerging Markets
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Equity and Emerging is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Equity Income Fund and Emerging Markets Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets and Equity Income 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 Equity Income Fund are associated (or correlated) with Emerging Markets. 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 Equity Income i.e., Equity Income and Emerging Markets go up and down completely randomly.
Pair Corralation between Equity Income and Emerging Markets
Assuming the 90 days horizon Equity Income Fund is expected to generate 0.64 times more return on investment than Emerging Markets. However, Equity Income Fund is 1.55 times less risky than Emerging Markets. It trades about 0.17 of its potential returns per unit of risk. Emerging Markets Fund is currently generating about -0.15 per unit of risk. If you would invest 945.00 in Equity Income Fund on August 28, 2024 and sell it today you would earn a total of 19.00 from holding Equity Income Fund or generate 2.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Equity Income Fund vs. Emerging Markets Fund
Performance |
| Timeline |
| Equity Income |
| Emerging Markets |
Equity Income and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Equity Income and Emerging Markets
The main advantage of trading using opposite Equity Income and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Income position performs unexpectedly, Emerging Markets 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 Emerging Markets will offset losses from the drop in Emerging Markets' long position.| Equity Income vs. International Growth Fund | Equity Income vs. Growth Fund Investor | Equity Income vs. Ultra Fund Investor | Equity Income vs. Strategic Allocation Aggressive |
| Emerging Markets vs. Heritage Fund Investor | Emerging Markets vs. Real Estate Fund | Emerging Markets vs. Global Growth Fund | Emerging Markets vs. Utilities Fund Investor |
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 Valuation module to check real value of public entities based on technical and fundamental data.
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