Correlation Between Global Hard and Emerging Markets

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

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

Diversification Opportunities for Global Hard and Emerging Markets

0.61

Correlation Coefficient

Global Hard  Emerging Markets

Poor diversification

The 3 months correlation between Global and Emerging is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Global Hard Assets and Emerging Markets Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets and Global Hard 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 Global Hard Assets 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 Global Hard i.e., Global Hard and Emerging Markets go up and down completely randomly.

Pair Corralation between Global Hard and Emerging Markets

Assuming the 90 days horizon Global Hard Assets is expected to under-perform the Emerging Markets. In addition to that, Global Hard is 1.1 times more volatile than Emerging Markets Fund. It trades about -0.07 of its total potential returns per unit of risk. Emerging Markets Fund is currently generating about -0.02 per unit of volatility. 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	98.36%
Values	Daily Returns

Global Hard Assets  vs.  Emerging Markets Fund

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 fundamental indicators, Global Hard is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Global Hard and Emerging Markets

The main advantage of trading using opposite Global Hard and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Hard 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 Global Hard Assets and Emerging Markets Fund 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.