Correlation Between Emerging Markets and Pear Tree

Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Pear Tree 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 Pear Tree 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 Pear Tree Polaris, you can compare the effects of market volatilities on Emerging Markets and Pear Tree 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 Pear Tree. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Pear Tree.

Diversification Opportunities for Emerging Markets and Pear Tree

0.76

Correlation Coefficient

Emerging Markets  Pear Tree

Poor diversification

The 3 months correlation between Emerging and Pear is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Portfolio and Pear Tree Polaris in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pear Tree Polaris 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 Pear Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pear Tree Polaris has no effect on the direction of Emerging Markets i.e., Emerging Markets and Pear Tree go up and down completely randomly.

Pair Corralation between Emerging Markets and Pear Tree

Assuming the 90 days horizon Emerging Markets Portfolio is expected to generate 1.28 times more return on investment than Pear Tree. However, Emerging Markets is 1.28 times more volatile than Pear Tree Polaris. It trades about 0.03 of its potential returns per unit of risk. Pear Tree Polaris is currently generating about -0.1 per unit of risk. If you would invest  2,134  in Emerging Markets Portfolio on September 16, 2024 and sell it today you would earn a total of  29.00  from holding Emerging Markets Portfolio or generate 1.36% return on investment over 90 days.

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

Emerging Markets Portfolio  vs.  Pear Tree Polaris

Emerging Markets Por

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets Portfolio are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Emerging Markets is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pear Tree Polaris

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Emerging Markets Portfolio and Pear Tree Polaris 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.