Correlation Between Barings Emerging and Large Cap

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

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

Diversification Opportunities for Barings Emerging and Large Cap

0.6

Correlation Coefficient

Barings Emerging  Large Cap

Poor diversification

The 3 months correlation between Barings and Large is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Barings Emerging Markets and Large Cap E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap E and Barings Emerging 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 Barings Emerging Markets are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap E has no effect on the direction of Barings Emerging i.e., Barings Emerging and Large Cap go up and down completely randomly.

Pair Corralation between Barings Emerging and Large Cap

Assuming the 90 days horizon Barings Emerging Markets is expected to generate 0.04 times more return on investment than Large Cap. However, Barings Emerging Markets is 23.57 times less risky than Large Cap. It trades about -0.43 of its potential returns per unit of risk. Large Cap E is currently generating about -0.26 per unit of risk. If you would invest  758.00  in Barings Emerging Markets on October 8, 2024 and sell it today you would lose (12.00) from holding Barings Emerging Markets or give up 1.58% of portfolio value over 90 days.

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

Barings Emerging Markets  vs.  Large Cap E

Barings Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

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

Large Cap E

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Large Cap E has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Barings Emerging and Large Cap

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

The idea behind Barings Emerging Markets and Large Cap E 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.