Correlation Between Barings Emerging and Small Cap

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

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

Diversification Opportunities for Barings Emerging and Small Cap

-0.35

Correlation Coefficient

Barings Emerging  Small Cap

Very good diversification

The 3 months correlation between Barings and Small is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Barings Emerging Markets and Small Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Equity and Barings Emerging 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 Barings Emerging Markets are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Equity has no effect on the direction of Barings Emerging i.e., Barings Emerging and Small Cap go up and down completely randomly.

Pair Corralation between Barings Emerging and Small Cap

Assuming the 90 days horizon Barings Emerging Markets is expected to under-perform the Small Cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Barings Emerging Markets is 4.43 times less risky than Small Cap. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Small Cap Equity is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,817  in Small Cap Equity on September 13, 2024 and sell it today you would earn a total of  93.00  from holding Small Cap Equity or generate 5.12% return on investment over 90 days.

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

Barings Emerging Markets  vs.  Small Cap Equity

Barings Emerging Markets

Risk-Adjusted Performance

0 of 100

Weak

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

Small Cap Equity

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Equity are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Barings Emerging and Small Cap

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

The idea behind Barings Emerging Markets and Small Cap Equity 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.