Correlation Between Unconstrained Emerging and Global Hard

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

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

Diversification Opportunities for Unconstrained Emerging and Global Hard

0.5

Correlation Coefficient

Unconstrained Emerging  Global Hard

Very weak diversification

The 3 months correlation between Unconstrained and Global is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Unconstrained Emerging Markets and Global Hard Assets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Hard Assets and Unconstrained 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 Unconstrained Emerging Markets are associated (or correlated) with Global Hard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Hard Assets has no effect on the direction of Unconstrained Emerging i.e., Unconstrained Emerging and Global Hard go up and down completely randomly.

Pair Corralation between Unconstrained Emerging and Global Hard

Assuming the 90 days horizon Unconstrained Emerging Markets is expected to generate 0.28 times more return on investment than Global Hard. However, Unconstrained Emerging Markets is 3.64 times less risky than Global Hard. It trades about -0.17 of its potential returns per unit of risk. Global Hard Assets is currently generating about -0.16 per unit of risk. If you would invest  548.00  in Unconstrained Emerging Markets on September 20, 2024 and sell it today you would lose (19.00) from holding Unconstrained Emerging Markets or give up 3.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Unconstrained Emerging Markets  vs.  Global Hard Assets

Unconstrained Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

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

Global Hard Assets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Hard Assets has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Unconstrained Emerging and Global Hard

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

The idea behind Unconstrained Emerging Markets and Global Hard Assets 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.