Correlation Between Large Cap and Ultraemerging Markets

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

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

Diversification Opportunities for Large Cap and Ultraemerging Markets

-0.49

Correlation Coefficient

Large Cap  Ultraemerging Markets

Very good diversification

The 3 months correlation between Large and Ultraemerging is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth Profund and Ultraemerging Markets Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultraemerging Markets and Large Cap 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 Large Cap Growth Profund are associated (or correlated) with Ultraemerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultraemerging Markets has no effect on the direction of Large Cap i.e., Large Cap and Ultraemerging Markets go up and down completely randomly.

Pair Corralation between Large Cap and Ultraemerging Markets

Assuming the 90 days horizon Large Cap Growth Profund is expected to generate 0.52 times more return on investment than Ultraemerging Markets. However, Large Cap Growth Profund is 1.94 times less risky than Ultraemerging Markets. It trades about -0.07 of its potential returns per unit of risk. Ultraemerging Markets Profund is currently generating about -0.14 per unit of risk. If you would invest  4,635  in Large Cap Growth Profund on October 6, 2024 and sell it today you would lose (83.00) from holding Large Cap Growth Profund or give up 1.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Large Cap Growth Profund  vs.  Ultraemerging Markets Profund

Large Cap Growth

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Growth Profund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Large Cap may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Ultraemerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ultraemerging Markets Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Large Cap and Ultraemerging Markets

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

The idea behind Large Cap Growth Profund and Ultraemerging Markets Profund 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.