Correlation Between VanEck Africa and Wasatch Frontier

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

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

Diversification Opportunities for VanEck Africa and Wasatch Frontier

0.71

Correlation Coefficient

VanEck Africa  Wasatch Frontier

Poor diversification

The 3 months correlation between VanEck and Wasatch is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Africa Index and Wasatch Frontier Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wasatch Frontier Emerging and VanEck Africa 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 VanEck Africa Index are associated (or correlated) with Wasatch Frontier. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wasatch Frontier Emerging has no effect on the direction of VanEck Africa i.e., VanEck Africa and Wasatch Frontier go up and down completely randomly.

Pair Corralation between VanEck Africa and Wasatch Frontier

Considering the 90-day investment horizon VanEck Africa Index is expected to generate 2.46 times more return on investment than Wasatch Frontier. However, VanEck Africa is 2.46 times more volatile than Wasatch Frontier Emerging. It trades about 0.07 of its potential returns per unit of risk. Wasatch Frontier Emerging is currently generating about -0.06 per unit of risk. If you would invest  1,593  in VanEck Africa Index on September 13, 2024 and sell it today you would earn a total of  85.00  from holding VanEck Africa Index or generate 5.34% return on investment over 90 days.

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

VanEck Africa Index  vs.  Wasatch Frontier Emerging

VanEck Africa Index

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Africa Index are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, VanEck Africa is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Wasatch Frontier Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with VanEck Africa and Wasatch Frontier

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

The idea behind VanEck Africa Index and Wasatch Frontier Emerging 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.