Correlation Between Emerging Markets and Intermediate Term
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Intermediate Term 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 Intermediate Term 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 Intermediate Term Bond Fund, you can compare the effects of market volatilities on Emerging Markets and Intermediate Term 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 Intermediate Term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Intermediate Term.
Diversification Opportunities for Emerging Markets and Intermediate Term
0.18 | Correlation Coefficient |
Average diversification
The 3 months correlation between Emerging and Intermediate is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Fund and Intermediate Term Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Term Bond 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 Intermediate Term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Term Bond has no effect on the direction of Emerging Markets i.e., Emerging Markets and Intermediate Term go up and down completely randomly.
Pair Corralation between Emerging Markets and Intermediate Term
Assuming the 90 days horizon Emerging Markets Fund is expected to generate 2.64 times more return on investment than Intermediate Term. However, Emerging Markets is 2.64 times more volatile than Intermediate Term Bond Fund. It trades about 0.03 of its potential returns per unit of risk. Intermediate Term Bond Fund is currently generating about 0.04 per unit of risk. If you would invest 1,967 in Emerging Markets Fund on August 25, 2024 and sell it today you would earn a total of 125.00 from holding Emerging Markets Fund or generate 6.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerging Markets Fund vs. Intermediate Term Bond Fund
Performance |
| Timeline |
| Emerging Markets |
| Intermediate Term Bond |
Emerging Markets and Intermediate Term Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and Intermediate Term
The main advantage of trading using opposite Emerging Markets and Intermediate Term positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Intermediate Term 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 Intermediate Term will offset losses from the drop in Intermediate Term's long position.| Emerging Markets vs. Capital Growth Fund | Emerging Markets vs. High Income Fund | Emerging Markets vs. International Fund International | Emerging Markets vs. Growth Income Fund |
| Intermediate Term vs. Capital Growth Fund | Intermediate Term vs. Emerging Markets Fund | Intermediate Term vs. High Income Fund | Intermediate Term vs. International Fund International |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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