Correlation Between Baillie Gifford and Emerging Markets

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

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

Diversification Opportunities for Baillie Gifford and Emerging Markets

0.64

Correlation Coefficient

Baillie Gifford  Emerging Markets

Poor diversification

The 3 months correlation between Baillie and Emerging is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Baillie Gifford China and The Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets and Baillie Gifford 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 Baillie Gifford China 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 Baillie Gifford i.e., Baillie Gifford and Emerging Markets go up and down completely randomly.

Pair Corralation between Baillie Gifford and Emerging Markets

Assuming the 90 days horizon Baillie Gifford China is expected to generate 2.46 times more return on investment than Emerging Markets. However, Baillie Gifford is 2.46 times more volatile than The Emerging Markets. It trades about 0.13 of its potential returns per unit of risk. The Emerging Markets is currently generating about 0.03 per unit of risk. If you would invest  443.00  in Baillie Gifford China on September 12, 2024 and sell it today you would earn a total of  93.00  from holding Baillie Gifford China or generate 20.99% return on investment over 90 days.

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

Baillie Gifford China  vs.  The Emerging Markets

Baillie Gifford China

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Baillie Gifford China are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental drivers, Baillie Gifford showed solid returns over the last few months and may actually be approaching a breakup point.

Emerging Markets

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Emerging Markets are ranked lower than 2 (%) 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 Baillie Gifford and Emerging Markets

The main advantage of trading using opposite Baillie Gifford and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Baillie Gifford 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 Baillie Gifford China and The Emerging Markets 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.