Correlation Between Intermediate Term and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Intermediate Term and Emerging Markets 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 Intermediate Term and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Intermediate Term Bond Fund and Emerging Markets Fund, you can compare the effects of market volatilities on Intermediate Term and Emerging Markets 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 Intermediate Term with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate Term and Emerging Markets.
Diversification Opportunities for Intermediate Term and Emerging Markets
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Intermediate and Emerging is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Term Bond Fund and Emerging Markets Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets and Intermediate Term 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 Intermediate Term Bond Fund are associated (or correlated) with Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets has no effect on the direction of Intermediate Term i.e., Intermediate Term and Emerging Markets go up and down completely randomly.
Pair Corralation between Intermediate Term and Emerging Markets
Assuming the 90 days horizon Intermediate Term Bond Fund is expected to generate 0.28 times more return on investment than Emerging Markets. However, Intermediate Term Bond Fund is 3.59 times less risky than Emerging Markets. It trades about -0.11 of its potential returns per unit of risk. Emerging Markets Fund is currently generating about -0.16 per unit of risk. If you would invest 912.00 in Intermediate Term Bond Fund on September 21, 2024 and sell it today you would lose (7.00) from holding Intermediate Term Bond Fund or give up 0.77% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Intermediate Term Bond Fund vs. Emerging Markets Fund
Performance |
| Timeline |
| Intermediate Term Bond |
| Emerging Markets |
Intermediate Term and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Intermediate Term and Emerging Markets
The main advantage of trading using opposite Intermediate Term and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Intermediate Term position performs unexpectedly, Emerging Markets 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 Emerging Markets will offset losses from the drop in Emerging Markets' long position.| Intermediate Term vs. Usaa Nasdaq 100 | Intermediate Term vs. Victory Diversified Stock | Intermediate Term vs. Usaa Intermediate Term | Intermediate Term vs. Usaa Tax Exempt |
| Emerging Markets vs. Income Fund Income | Emerging Markets vs. Usaa Nasdaq 100 | Emerging Markets vs. Victory Diversified Stock | Emerging Markets vs. Intermediate Term Bond 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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