Correlation Between Baillie Gifford and Emerging Markets

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

By analyzing existing cross correlation between Baillie Gifford International and The Emerging Markets, you can compare the effects of market volatilities on Baillie Gifford and Emerging Markets 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 Baillie Gifford with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Baillie Gifford and Emerging Markets.

Diversification Opportunities for Baillie Gifford and Emerging Markets

0.91

Correlation Coefficient

Baillie Gifford  Emerging Markets

Almost no diversification

The 3 months correlation between Baillie and Emerging is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Baillie Gifford International and The Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets and Baillie Gifford 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 Baillie Gifford International are associated (or correlated) with Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets has no effect on the direction of Baillie Gifford i.e., Baillie Gifford and Emerging Markets go up and down completely randomly.

Pair Corralation between Baillie Gifford and Emerging Markets

Assuming the 90 days horizon Baillie Gifford is expected to generate 1.11 times less return on investment than Emerging Markets. But when comparing it to its historical volatility, Baillie Gifford International is 1.25 times less risky than Emerging Markets. It trades about 0.11 of its potential returns per unit of risk. The Emerging Markets is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,950  in The Emerging Markets on December 30, 2024 and sell it today you would earn a total of  148.00  from holding The Emerging Markets or generate 7.59% return on investment over 90 days.

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

Baillie Gifford International  vs.  The Emerging Markets

Baillie Gifford Inte

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Baillie Gifford International are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Baillie Gifford may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Emerging Markets

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Emerging Markets are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Emerging Markets may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Baillie Gifford and Emerging Markets

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

The idea behind Baillie Gifford International and The 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.