Correlation Between Emerging Markets and Unconstrained Emerging

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

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

Diversification Opportunities for Emerging Markets and Unconstrained Emerging

0.82

Correlation Coefficient

Emerging Markets  Unconstrained Emerging

Very poor diversification

The 3 months correlation between Emerging and UNCONSTRAINED is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Fund and Unconstrained Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unconstrained Emerging 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 Fund are associated (or correlated) with Unconstrained Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unconstrained Emerging has no effect on the direction of Emerging Markets i.e., Emerging Markets and Unconstrained Emerging go up and down completely randomly.

Pair Corralation between Emerging Markets and Unconstrained Emerging

Assuming the 90 days horizon Emerging Markets Fund is expected to under-perform the Unconstrained Emerging. In addition to that, Emerging Markets is 2.6 times more volatile than Unconstrained Emerging Markets. It trades about -0.04 of its total potential returns per unit of risk. Unconstrained Emerging Markets is currently generating about -0.03 per unit of volatility. If you would invest  533.00  in Unconstrained Emerging Markets on September 4, 2024 and sell it today you would lose (4.00) from holding Unconstrained Emerging Markets or give up 0.75% of portfolio value over 90 days.

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

Emerging Markets Fund  vs.  Unconstrained Emerging Markets

Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Emerging Markets Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong 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.

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.

Pair Trading with Emerging Markets and Unconstrained Emerging

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

The idea behind Emerging Markets Fund and Unconstrained 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.

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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.