Correlation Between Extended Market and World Growth
Can any of the company-specific risk be diversified away by investing in both Extended Market 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 Extended Market and World Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Extended Market Index and World Growth Fund, you can compare the effects of market volatilities on Extended Market 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 Extended Market with a short position of World Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Extended Market and World Growth.
Diversification Opportunities for Extended Market and World Growth
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Extended and World is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Extended Market Index and World Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Growth and Extended Market 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 Extended Market Index 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 Extended Market i.e., Extended Market and World Growth go up and down completely randomly.
Pair Corralation between Extended Market and World Growth
Assuming the 90 days horizon Extended Market is expected to generate 1.85 times less return on investment than World Growth. In addition to that, Extended Market is 1.54 times more volatile than World Growth Fund. It trades about 0.03 of its total potential returns per unit of risk. World Growth Fund is currently generating about 0.08 per unit of volatility. If you would invest 2,269 in World Growth Fund on November 2, 2024 and sell it today you would earn a total of 784.00 from holding World Growth Fund or generate 34.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Extended Market Index vs. World Growth Fund
Performance |
| Timeline |
| Extended Market Index |
| World Growth |
Extended Market and World Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Extended Market and World Growth
The main advantage of trading using opposite Extended Market and World Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Extended Market 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.| Extended Market vs. Franklin Low Duration | Extended Market vs. Mndvux | Extended Market vs. Voya Global Equity | Extended Market vs. Legg Mason Bw |
| World Growth vs. International Fund International | World Growth vs. Emerging Markets Fund | World Growth vs. Science Technology Fund | World Growth vs. Aggressive Growth 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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