Correlation Between Emerging Markets and New Perspective
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and New Perspective 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 New Perspective 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 New Perspective Fund, you can compare the effects of market volatilities on Emerging Markets and New Perspective 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 New Perspective. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and New Perspective.
Diversification Opportunities for Emerging Markets and New Perspective
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Emerging and New is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Fund and New Perspective Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Perspective 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 New Perspective. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Perspective has no effect on the direction of Emerging Markets i.e., Emerging Markets and New Perspective go up and down completely randomly.
Pair Corralation between Emerging Markets and New Perspective
Assuming the 90 days horizon Emerging Markets is expected to generate 1.87 times less return on investment than New Perspective. In addition to that, Emerging Markets is 1.16 times more volatile than New Perspective Fund. It trades about 0.04 of its total potential returns per unit of risk. New Perspective Fund is currently generating about 0.09 per unit of volatility. If you would invest 4,667 in New Perspective Fund on August 25, 2024 and sell it today you would earn a total of 1,895 from holding New Perspective Fund or generate 40.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Emerging Markets Fund vs. New Perspective Fund
Performance |
| Timeline |
| Emerging Markets |
| New Perspective |
Emerging Markets and New Perspective Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and New Perspective
The main advantage of trading using opposite Emerging Markets and New Perspective positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, New Perspective 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 New Perspective will offset losses from the drop in New Perspective'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 |
| New Perspective vs. Washington Mutual Investors | New Perspective vs. American Balanced Fund | New Perspective vs. New World Fund | New Perspective vs. Europacific Growth 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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