Correlation Between Emerging Economies and Valic Company
Can any of the company-specific risk be diversified away by investing in both Emerging Economies and Valic Company 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 Economies and Valic Company into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emerging Economies Fund and Valic Company I, you can compare the effects of market volatilities on Emerging Economies and Valic Company 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 Economies with a short position of Valic Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Economies and Valic Company.
Diversification Opportunities for Emerging Economies and Valic Company
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Emerging and Valic is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Economies Fund and Valic Company I in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valic Company I and Emerging Economies 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 Economies Fund are associated (or correlated) with Valic Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valic Company I has no effect on the direction of Emerging Economies i.e., Emerging Economies and Valic Company go up and down completely randomly.
Pair Corralation between Emerging Economies and Valic Company
Assuming the 90 days horizon Emerging Economies is expected to generate 1.38 times less return on investment than Valic Company. But when comparing it to its historical volatility, Emerging Economies Fund is 1.92 times less risky than Valic Company. It trades about 0.04 of its potential returns per unit of risk. Valic Company I is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,753 in Valic Company I on August 31, 2024 and sell it today you would earn a total of 354.00 from holding Valic Company I or generate 20.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerging Economies Fund vs. Valic Company I
Performance |
| Timeline |
| Emerging Economies |
| Valic Company I |
Emerging Economies and Valic Company Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Economies and Valic Company
The main advantage of trading using opposite Emerging Economies and Valic Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Economies position performs unexpectedly, Valic Company 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 Valic Company will offset losses from the drop in Valic Company's long position.The idea behind Emerging Economies Fund and Valic Company I pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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