Correlation Between Emerging Markets and Large Company
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Large Company 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 Large Company into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emerging Markets Fund and Large Pany Value, you can compare the effects of market volatilities on Emerging Markets and Large Company 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 Large Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Large Company.
Diversification Opportunities for Emerging Markets and Large Company
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Emerging and Large is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Fund and Large Pany Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Pany Value 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 Fund are associated (or correlated) with Large Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Pany Value has no effect on the direction of Emerging Markets i.e., Emerging Markets and Large Company go up and down completely randomly.
Pair Corralation between Emerging Markets and Large Company
Assuming the 90 days horizon Emerging Markets Fund is expected to generate 1.29 times more return on investment than Large Company. However, Emerging Markets is 1.29 times more volatile than Large Pany Value. It trades about 0.03 of its potential returns per unit of risk. Large Pany Value is currently generating about 0.03 per unit of risk. If you would invest 1,006 in Emerging Markets Fund on November 2, 2024 and sell it today you would earn a total of 123.00 from holding Emerging Markets Fund or generate 12.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerging Markets Fund vs. Large Pany Value
Performance |
| Timeline |
| Emerging Markets |
| Large Pany Value |
Emerging Markets and Large Company Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and Large Company
The main advantage of trading using opposite Emerging Markets and Large Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Large Company 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 Large Company will offset losses from the drop in Large Company's long position.| Emerging Markets vs. Heritage Fund Investor | Emerging Markets vs. Real Estate Fund | Emerging Markets vs. Global Growth Fund | Emerging Markets vs. Utilities Fund Investor |
| Large Company vs. Small Pany Fund | Large Company vs. Value Fund Investor | Large Company vs. Small Cap Value | Large Company vs. Real Estate Fund |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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