Correlation Between Emerging Markets and Global Hard

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

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

Diversification Opportunities for Emerging Markets and Global Hard

0.61

Correlation Coefficient

Emerging Markets  Global Hard

Poor diversification

The 3 months correlation between Emerging and Global is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Fund and Global Hard Assets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Hard Assets 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 Fund are associated (or correlated) with Global Hard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Hard Assets has no effect on the direction of Emerging Markets i.e., Emerging Markets and Global Hard go up and down completely randomly.

Pair Corralation between Emerging Markets and Global Hard

Assuming the 90 days horizon Emerging Markets Fund is expected to generate 0.9 times more return on investment than Global Hard. However, Emerging Markets Fund is 1.11 times less risky than Global Hard. It trades about -0.02 of its potential returns per unit of risk. Global Hard Assets is currently generating about -0.07 per unit of risk. If you would invest  1,187  in Emerging Markets Fund on December 1, 2024 and sell it today you would lose (18.00) from holding Emerging Markets Fund or give up 1.52% of portfolio value over 90 days.

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

Emerging Markets Fund  vs.  Global Hard Assets

Emerging Markets

Risk-Adjusted Performance

Very Weak

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

Global Hard Assets

Risk-Adjusted Performance

Very Weak

Over the last 90 days Global Hard Assets has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Global Hard 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 Global Hard

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

The idea behind Emerging Markets Fund and Global Hard Assets 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.