Correlation Between Emerging Europe and Vanguard Financials

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

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

Diversification Opportunities for Emerging Europe and Vanguard Financials

0.64

Correlation Coefficient

Emerging Europe  Vanguard Financials

Poor diversification

The 3 months correlation between Emerging and Vanguard is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Europe Fund and Vanguard Financials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Financials Index and Emerging Europe 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 Europe Fund are associated (or correlated) with Vanguard Financials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Financials Index has no effect on the direction of Emerging Europe i.e., Emerging Europe and Vanguard Financials go up and down completely randomly.

Pair Corralation between Emerging Europe and Vanguard Financials

If you would invest  4,988  in Vanguard Financials Index on September 27, 2024 and sell it today you would earn a total of  1,034  from holding Vanguard Financials Index or generate 20.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	0.79%
Values	Daily Returns

Emerging Europe Fund  vs.  Vanguard Financials Index

Emerging Europe

Risk-Adjusted Performance

0 of 100

Very Weak

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

Vanguard Financials Index

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Financials Index are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Financials may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Emerging Europe and Vanguard Financials

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

The idea behind Emerging Europe Fund and Vanguard Financials Index 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.