Correlation Between Us Small and Emerging Markets

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

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

Diversification Opportunities for Us Small and Emerging Markets

-0.33

Correlation Coefficient

Us Small  Emerging Markets

Very good diversification

The 3 months correlation between DFSVX and Emerging is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Us Small Cap and Emerging Markets Sustainabilit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Sus and Us Small 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 Us Small Cap 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 Sus has no effect on the direction of Us Small i.e., Us Small and Emerging Markets go up and down completely randomly.

Pair Corralation between Us Small and Emerging Markets

Assuming the 90 days horizon Us Small Cap is expected to under-perform the Emerging Markets. In addition to that, Us Small is 1.95 times more volatile than Emerging Markets Sustainability. It trades about -0.29 of its total potential returns per unit of risk. Emerging Markets Sustainability is currently generating about -0.31 per unit of volatility. If you would invest  978.00  in Emerging Markets Sustainability on October 7, 2024 and sell it today you would lose (33.00) from holding Emerging Markets Sustainability or give up 3.37% of portfolio value over 90 days.

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

Us Small Cap  vs.  Emerging Markets Sustainabilit

Us Small Cap

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Us Small Cap are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Us Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Emerging Markets Sus

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Us Small and Emerging Markets

The main advantage of trading using opposite Us Small and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Us Small 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 Us Small Cap and Emerging Markets Sustainability 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.