Correlation Between World Growth and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both World Growth 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 World Growth and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between World Growth Fund and Emerging Markets Fund, you can compare the effects of market volatilities on World Growth 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 World Growth with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of World Growth and Emerging Markets.
Diversification Opportunities for World Growth and Emerging Markets
0.14 | Correlation Coefficient |
Average diversification
The 3 months correlation between World and Emerging is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding World Growth 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 World Growth 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 World Growth 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 World Growth i.e., World Growth and Emerging Markets go up and down completely randomly.
Pair Corralation between World Growth and Emerging Markets
Assuming the 90 days horizon World Growth Fund is expected to generate 0.9 times more return on investment than Emerging Markets. However, World Growth Fund is 1.12 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 0.06 per unit of risk. If you would invest 2,149 in World Growth Fund on September 13, 2024 and sell it today you would earn a total of 1,124 from holding World Growth Fund or generate 52.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
World Growth Fund vs. Emerging Markets Fund
Performance |
| Timeline |
| World Growth |
| Emerging Markets |
World Growth and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with World Growth and Emerging Markets
The main advantage of trading using opposite World Growth and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if World Growth 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.| World Growth vs. International Fund International | World Growth vs. Emerging Markets Fund | World Growth vs. Science Technology Fund | World Growth vs. Aggressive Growth Fund |
| Emerging Markets vs. Atac Inflation Rotation | Emerging Markets vs. Schwab Treasury Inflation | Emerging Markets vs. Aqr Managed Futures | Emerging Markets vs. Loomis Sayles Inflation |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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