Correlation Between Target Retirement and Parametric Emerging

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Can any of the company-specific risk be diversified away by investing in both Target Retirement and Parametric 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 Target Retirement and Parametric Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Target Retirement 2040 and Parametric Emerging Markets, you can compare the effects of market volatilities on Target Retirement and Parametric 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 Target Retirement with a short position of Parametric Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Target Retirement and Parametric Emerging.

Diversification Opportunities for Target Retirement and Parametric Emerging

TargetParametricDiversified AwayTargetParametricDiversified Away100%
0.13
  Correlation Coefficient

Average diversification

The 3 months correlation between Target and Parametric is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Target Retirement 2040 and Parametric Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parametric Emerging and Target Retirement 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 Target Retirement 2040 are associated (or correlated) with Parametric Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parametric Emerging has no effect on the direction of Target Retirement i.e., Target Retirement and Parametric Emerging go up and down completely randomly.

Pair Corralation between Target Retirement and Parametric Emerging

Assuming the 90 days horizon Target Retirement is expected to generate 2.18 times less return on investment than Parametric Emerging. In addition to that, Target Retirement is 1.03 times more volatile than Parametric Emerging Markets. It trades about 0.13 of its total potential returns per unit of risk. Parametric Emerging Markets is currently generating about 0.28 per unit of volatility. If you would invest  1,462  in Parametric Emerging Markets on September 14, 2024 and sell it today you would earn a total of  33.00  from holding Parametric Emerging Markets or generate 2.26% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Target Retirement 2040  vs.  Parametric Emerging Markets

 Performance 
JavaScript chart by amCharts 3.21.15OctNov 1234567
JavaScript chart by amCharts 3.21.15URFRX EIEMX
       Timeline  
Target Retirement 2040 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Target Retirement 2040 are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Target Retirement is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec13.513.613.713.813.914
Parametric Emerging 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Parametric Emerging Markets are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Parametric Emerging is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec14.514.614.714.814.91515.115.215.315.4

Target Retirement and Parametric Emerging Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-1.49-1.09-0.69-0.290.02720.370.771.171.571.97 0.51.01.5
JavaScript chart by amCharts 3.21.15URFRX EIEMX
       Returns  

Pair Trading with Target Retirement and Parametric Emerging

The main advantage of trading using opposite Target Retirement and Parametric Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target Retirement position performs unexpectedly, Parametric 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 Parametric Emerging will offset losses from the drop in Parametric Emerging's long position.
The idea behind Target Retirement 2040 and Parametric 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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