Correlation Between Global Gold and Emerging Markets

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

By analyzing existing cross correlation between Global Gold Fund and Emerging Markets Targeted, you can compare the effects of market volatilities on Global Gold 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 Global Gold with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Gold and Emerging Markets.

Diversification Opportunities for Global Gold and Emerging Markets

0.53

Correlation Coefficient

Global Gold  Emerging Markets

Very weak diversification

The 3 months correlation between Global and Emerging is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Global Gold Fund and Emerging Markets Targeted in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Targeted and Global Gold 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 Gold 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 Targeted has no effect on the direction of Global Gold i.e., Global Gold and Emerging Markets go up and down completely randomly.

Pair Corralation between Global Gold and Emerging Markets

Assuming the 90 days horizon Global Gold Fund is expected to generate 2.15 times more return on investment than Emerging Markets. However, Global Gold is 2.15 times more volatile than Emerging Markets Targeted. It trades about 0.05 of its potential returns per unit of risk. Emerging Markets Targeted is currently generating about 0.02 per unit of risk. If you would invest  1,231  in Global Gold Fund on September 3, 2024 and sell it today you would earn a total of  55.00  from holding Global Gold Fund or generate 4.47% return on investment over 90 days.

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

Global Gold Fund  vs.  Emerging Markets Targeted

Global Gold Fund

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Global Gold Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Global Gold is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Emerging Markets Targeted

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets Targeted are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Emerging Markets is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Global Gold and Emerging Markets

The main advantage of trading using opposite Global Gold and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Gold 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.

The idea behind Global Gold Fund and Emerging Markets Targeted 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.

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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.