Correlation Between High Income and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both High Income 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 High Income and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between High Income Fund and Emerging Markets Fund, you can compare the effects of market volatilities on High Income 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 High Income with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of High Income and Emerging Markets.
Diversification Opportunities for High Income and Emerging Markets
0.41 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between High and Emerging is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding High Income 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 High Income 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 High Income 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 High Income i.e., High Income and Emerging Markets go up and down completely randomly.
Pair Corralation between High Income and Emerging Markets
Assuming the 90 days horizon High Income Fund is expected to generate 0.2 times more return on investment than Emerging Markets. However, High Income Fund is 4.91 times less risky than Emerging Markets. It trades about 0.04 of its potential returns per unit of risk. Emerging Markets Fund is currently generating about -0.25 per unit of risk. If you would invest 690.00 in High Income Fund on August 29, 2024 and sell it today you would earn a total of 1.00 from holding High Income Fund or generate 0.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
High Income Fund vs. Emerging Markets Fund
Performance |
| Timeline |
| High Income Fund |
| Emerging Markets |
High Income and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with High Income and Emerging Markets
The main advantage of trading using opposite High Income and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High Income 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.| High Income vs. Transamerica Financial Life | High Income vs. Financial Industries Fund | High Income vs. Hennessy Large Cap | High Income vs. T Rowe Price |
| Emerging Markets vs. Vanguard Emerging Markets | Emerging Markets vs. Vanguard Emerging Markets | Emerging Markets vs. HUMANA INC | Emerging Markets vs. Aquagold 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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