Correlation Between Emerging Markets and World Core

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

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

Diversification Opportunities for Emerging Markets and World Core

0.35

Correlation Coefficient

Emerging Markets  World Core

Weak diversification

The 3 months correlation between Emerging and World is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Small and World Core Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Core Equity 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 Small are associated (or correlated) with World Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Core Equity has no effect on the direction of Emerging Markets i.e., Emerging Markets and World Core go up and down completely randomly.

Pair Corralation between Emerging Markets and World Core

Assuming the 90 days horizon Emerging Markets Small is expected to under-perform the World Core. But the mutual fund apears to be less risky and, when comparing its historical volatility, Emerging Markets Small is 1.06 times less risky than World Core. The mutual fund trades about -0.2 of its potential returns per unit of risk. The World Core Equity is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  2,519  in World Core Equity on October 12, 2024 and sell it today you would lose (122.00) from holding World Core Equity or give up 4.84% 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 Small  vs.  World Core Equity

Emerging Markets Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Emerging Markets Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

World Core Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days World Core Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, World Core 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 World Core

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

The idea behind Emerging Markets Small and World Core Equity 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..