Correlation Between Global Strategy and Emerging Economies
Can any of the company-specific risk be diversified away by investing in both Global Strategy and Emerging Economies 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 Global Strategy and Emerging Economies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global Strategy Fund and Emerging Economies Fund, you can compare the effects of market volatilities on Global Strategy and Emerging Economies 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 Global Strategy with a short position of Emerging Economies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Strategy and Emerging Economies.
Diversification Opportunities for Global Strategy and Emerging Economies
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Global and Emerging is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Global Strategy Fund and Emerging Economies Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Economies and Global Strategy 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 Global Strategy Fund are associated (or correlated) with Emerging Economies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Economies has no effect on the direction of Global Strategy i.e., Global Strategy and Emerging Economies go up and down completely randomly.
Pair Corralation between Global Strategy and Emerging Economies
Assuming the 90 days horizon Global Strategy Fund is expected to generate 0.57 times more return on investment than Emerging Economies. However, Global Strategy Fund is 1.76 times less risky than Emerging Economies. It trades about 0.11 of its potential returns per unit of risk. Emerging Economies Fund is currently generating about -0.2 per unit of risk. If you would invest 1,019 in Global Strategy Fund on August 31, 2024 and sell it today you would earn a total of 11.00 from holding Global Strategy Fund or generate 1.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Global Strategy Fund vs. Emerging Economies Fund
Performance |
| Timeline |
| Global Strategy |
| Emerging Economies |
Global Strategy and Emerging Economies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Global Strategy and Emerging Economies
The main advantage of trading using opposite Global Strategy and Emerging Economies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Strategy position performs unexpectedly, Emerging Economies 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 Economies will offset losses from the drop in Emerging Economies' long position.| Global Strategy vs. Franklin Government Money | Global Strategy vs. Dreyfus Government Cash | Global Strategy vs. Us Government Plus | Global Strategy vs. Us Government Securities |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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