Correlation Between Emerging Markets and Global Growth
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Global 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 Global 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 Global Growth Fund, you can compare the effects of market volatilities on Emerging Markets and Global 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 Global Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Global Growth.
Diversification Opportunities for Emerging Markets and Global Growth
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Emerging and Global is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Fund and Global Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global 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 Global Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Growth has no effect on the direction of Emerging Markets i.e., Emerging Markets and Global Growth go up and down completely randomly.
Pair Corralation between Emerging Markets and Global Growth
Assuming the 90 days horizon Emerging Markets is expected to generate 1.02 times less return on investment than Global Growth. But when comparing it to its historical volatility, Emerging Markets Fund is 1.07 times less risky than Global Growth. It trades about 0.04 of its potential returns per unit of risk. Global Growth Fund is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 1,060 in Global Growth Fund on August 30, 2024 and sell it today you would earn a total of 190.00 from holding Global Growth Fund or generate 17.92% 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. Global Growth Fund
Performance |
| Timeline |
| Emerging Markets |
| Global Growth |
Emerging Markets and Global Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and Global Growth
The main advantage of trading using opposite Emerging Markets and Global Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Global 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 Global Growth will offset losses from the drop in Global 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 |
| Global Growth vs. Emerging Markets Fund | Global Growth vs. International Growth Fund | Global Growth vs. Heritage Fund Investor | Global Growth vs. Select 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
Other Complementary Tools
| Equity Analysis Research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities | |
| Balance Of Power Check stock momentum by analyzing Balance Of Power indicator and other technical ratios | |
| Idea Optimizer Use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio | |
| Bollinger Bands Use Bollinger Bands indicator to analyze target price for a given investing horizon | |
| Odds Of Bankruptcy Get analysis of equity chance of financial distress in the next 2 years |