Correlation Between Emerging Markets and Global Advantage

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

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

Diversification Opportunities for Emerging Markets and Global Advantage

-0.79

Correlation Coefficient

Emerging Markets  Global Advantage

Pay attention - limited upside

The 3 months correlation between Emerging and Global is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Portfolio and Global Advantage Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Advantage Por 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 Portfolio are associated (or correlated) with Global Advantage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Advantage Por has no effect on the direction of Emerging Markets i.e., Emerging Markets and Global Advantage go up and down completely randomly.

Pair Corralation between Emerging Markets and Global Advantage

Assuming the 90 days horizon Emerging Markets Portfolio is expected to generate 0.32 times more return on investment than Global Advantage. However, Emerging Markets Portfolio is 3.14 times less risky than Global Advantage. It trades about -0.24 of its potential returns per unit of risk. Global Advantage Portfolio is currently generating about -0.13 per unit of risk. If you would invest  2,155  in Emerging Markets Portfolio on October 7, 2024 and sell it today you would lose (73.00) from holding Emerging Markets Portfolio or give up 3.39% of portfolio value over 90 days.

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

Emerging Markets Portfolio  vs.  Global Advantage Portfolio

Emerging Markets Por

Risk-Adjusted Performance

0 of 100

Very Weak

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

Global Advantage Por

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global Advantage Portfolio are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Global Advantage showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Emerging Markets and Global Advantage

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

The idea behind Emerging Markets Portfolio and Global Advantage Portfolio 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.