Correlation Between Emerging Markets and Floating Rate

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

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

Diversification Opportunities for Emerging Markets and Floating Rate

-0.06

Correlation Coefficient

Emerging Markets  Floating Rate

Good diversification

The 3 months correlation between Emerging and Floating is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding The Emerging Markets and Floating Rate Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Floating Rate 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 The Emerging Markets are associated (or correlated) with Floating Rate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Floating Rate has no effect on the direction of Emerging Markets i.e., Emerging Markets and Floating Rate go up and down completely randomly.

Pair Corralation between Emerging Markets and Floating Rate

Assuming the 90 days horizon The Emerging Markets is expected to generate 15.77 times more return on investment than Floating Rate. However, Emerging Markets is 15.77 times more volatile than Floating Rate Fund. It trades about 0.03 of its potential returns per unit of risk. Floating Rate Fund is currently generating about 0.12 per unit of risk. If you would invest  1,930  in The Emerging Markets on September 12, 2024 and sell it today you would earn a total of  8.00  from holding The Emerging Markets or generate 0.41% return on investment over 90 days.

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

The Emerging Markets  vs.  Floating Rate Fund

Emerging Markets

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Emerging Markets are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Emerging Markets is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Floating Rate

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Floating Rate Fund are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Floating Rate 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 Floating Rate

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

The idea behind The Emerging Markets and Floating Rate 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.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.