Correlation Between Disciplined Value and Parametric Emerging

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

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

Diversification Opportunities for Disciplined Value and Parametric Emerging

0.29

Correlation Coefficient

Disciplined Value  Parametric Emerging

Modest diversification

The 3 months correlation between Disciplined and Parametric is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Disciplined Value Series and Parametric Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parametric Emerging and Disciplined Value 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 Disciplined Value Series are associated (or correlated) with Parametric Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parametric Emerging has no effect on the direction of Disciplined Value i.e., Disciplined Value and Parametric Emerging go up and down completely randomly.

Pair Corralation between Disciplined Value and Parametric Emerging

Assuming the 90 days horizon Disciplined Value Series is expected to under-perform the Parametric Emerging. In addition to that, Disciplined Value is 2.23 times more volatile than Parametric Emerging Markets. It trades about -0.11 of its total potential returns per unit of risk. Parametric Emerging Markets is currently generating about 0.01 per unit of volatility. If you would invest  1,417  in Parametric Emerging Markets on December 2, 2024 and sell it today you would earn a total of  5.00  from holding Parametric Emerging Markets or generate 0.35% return on investment over 90 days.

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

Disciplined Value Series  vs.  Parametric Emerging Markets

Disciplined Value Series

Risk-Adjusted Performance

Very Weak

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

Parametric Emerging

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Parametric Emerging Markets are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Parametric Emerging is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Disciplined Value and Parametric Emerging

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

The idea behind Disciplined Value Series and Parametric Emerging Markets 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.