Correlation Between Emerging Markets and Global Strategist

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

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

Diversification Opportunities for Emerging Markets and Global Strategist

0.24

Correlation Coefficient

Emerging Markets  Global Strategist

Modest diversification

The 3 months correlation between Emerging and Global is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Equity and Global Strategist Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Strategist 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 Equity are associated (or correlated) with Global Strategist. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Strategist has no effect on the direction of Emerging Markets i.e., Emerging Markets and Global Strategist go up and down completely randomly.

Pair Corralation between Emerging Markets and Global Strategist

Assuming the 90 days horizon Emerging Markets Equity is expected to generate 2.41 times more return on investment than Global Strategist. However, Emerging Markets is 2.41 times more volatile than Global Strategist Portfolio. It trades about -0.01 of its potential returns per unit of risk. Global Strategist Portfolio is currently generating about -0.04 per unit of risk. If you would invest  1,390  in Emerging Markets Equity on September 17, 2024 and sell it today you would lose (12.00) from holding Emerging Markets Equity or give up 0.86% of portfolio value over 90 days.

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

Emerging Markets Equity  vs.  Global Strategist Portfolio

Emerging Markets Equity

Risk-Adjusted Performance

0 of 100

Very Weak

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

Global Strategist

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Strategist Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Global Strategist 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 Global Strategist

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

The idea behind Emerging Markets Equity and Global Strategist Portfolio 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.