Correlation Between Emerging Markets and Gold

Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Gold 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 Gold into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Emerging Markets Debt and Gold And Precious, you can compare the effects of market volatilities on Emerging Markets and Gold 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 Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Gold.

Diversification Opportunities for Emerging Markets and Gold

0.54

Correlation Coefficient

Emerging Markets  Gold

Very weak diversification

The 3 months correlation between Emerging and Gold is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Debt and Gold And Precious in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold And Precious 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 Debt are associated (or correlated) with Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold And Precious has no effect on the direction of Emerging Markets i.e., Emerging Markets and Gold go up and down completely randomly.

Pair Corralation between Emerging Markets and Gold

Assuming the 90 days horizon Emerging Markets Debt is expected to generate 0.18 times more return on investment than Gold. However, Emerging Markets Debt is 5.57 times less risky than Gold. It trades about -0.27 of its potential returns per unit of risk. Gold And Precious is currently generating about -0.14 per unit of risk. If you would invest  915.00  in Emerging Markets Debt on September 25, 2024 and sell it today you would lose (49.00) from holding Emerging Markets Debt or give up 5.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Emerging Markets Debt  vs.  Gold And Precious

Emerging Markets Debt

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Emerging Markets Debt has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Emerging Markets is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Gold And Precious

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gold And Precious has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Emerging Markets and Gold

The main advantage of trading using opposite Emerging Markets and Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Gold 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 Gold will offset losses from the drop in Gold's long position.

The idea behind Emerging Markets Debt and Gold And Precious 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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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.