Correlation Between Emerging Markets and Income Growth
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Income Growth 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 Income Growth 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 Income Growth Fund, you can compare the effects of market volatilities on Emerging Markets and Income Growth 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 Income Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Income Growth.
Diversification Opportunities for Emerging Markets and Income Growth
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Emerging and Income is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Fund and Income Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Income Growth 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 Income Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Income Growth has no effect on the direction of Emerging Markets i.e., Emerging Markets and Income Growth go up and down completely randomly.
Pair Corralation between Emerging Markets and Income Growth
Assuming the 90 days horizon Emerging Markets Fund is expected to generate 0.88 times more return on investment than Income Growth. However, Emerging Markets Fund is 1.14 times less risky than Income Growth. It trades about 0.17 of its potential returns per unit of risk. Income Growth Fund is currently generating about -0.05 per unit of risk. If you would invest 1,124 in Emerging Markets Fund on September 18, 2024 and sell it today you would earn a total of 19.00 from holding Emerging Markets Fund or generate 1.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerging Markets Fund vs. Income Growth Fund
Performance |
| Timeline |
| Emerging Markets |
| Income Growth |
Emerging Markets and Income Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and Income Growth
The main advantage of trading using opposite Emerging Markets and Income Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Income Growth 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 Income Growth will offset losses from the drop in Income Growth'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 |
| Income Growth vs. Heritage Fund Investor | Income Growth vs. Equity Growth Fund | Income Growth vs. Mid Cap Value |
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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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