Correlation Between Emerging Markets and World Growth
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and World 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 World 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 World Growth Fund, you can compare the effects of market volatilities on Emerging Markets and World 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 World Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and World Growth.
Diversification Opportunities for Emerging Markets and World Growth
0.53 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Emerging and World is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Fund and World Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World 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 World Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Growth has no effect on the direction of Emerging Markets i.e., Emerging Markets and World Growth go up and down completely randomly.
Pair Corralation between Emerging Markets and World Growth
Assuming the 90 days horizon Emerging Markets is expected to generate 1.11 times less return on investment than World Growth. But when comparing it to its historical volatility, Emerging Markets Fund is 1.01 times less risky than World Growth. It trades about 0.12 of its potential returns per unit of risk. World Growth Fund is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 2,964 in World Growth Fund on October 31, 2024 and sell it today you would earn a total of 64.00 from holding World Growth Fund or generate 2.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerging Markets Fund vs. World Growth Fund
Performance |
| Timeline |
| Emerging Markets |
| World Growth |
Emerging Markets and World Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and World Growth
The main advantage of trading using opposite Emerging Markets and World Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, World 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 World Growth will offset losses from the drop in World Growth's long position.| Emerging Markets vs. Victory High Yield | Emerging Markets vs. Federated High Yield | Emerging Markets vs. Virtus High Yield | Emerging Markets vs. Jpmorgan High Yield |
| World Growth vs. Income Fund Income | World Growth vs. Usaa Nasdaq 100 | World Growth vs. Victory Diversified Stock | World Growth 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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