Correlation Between Global Advantage and Emerging Markets

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

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

Diversification Opportunities for Global Advantage and Emerging Markets

-0.64

Correlation Coefficient

Global Advantage  Emerging Markets

Excellent diversification

The 3 months correlation between Global and Emerging is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Global Advantage Portfolio and Emerging Markets Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Por and Global Advantage 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 Global Advantage Portfolio are associated (or correlated) with Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets Por has no effect on the direction of Global Advantage i.e., Global Advantage and Emerging Markets go up and down completely randomly.

Pair Corralation between Global Advantage and Emerging Markets

Assuming the 90 days horizon Global Advantage Portfolio is expected to generate 1.99 times more return on investment than Emerging Markets. However, Global Advantage is 1.99 times more volatile than Emerging Markets Portfolio. It trades about 0.12 of its potential returns per unit of risk. Emerging Markets Portfolio is currently generating about 0.05 per unit of risk. If you would invest  932.00  in Global Advantage Portfolio on October 24, 2024 and sell it today you would earn a total of  561.00  from holding Global Advantage Portfolio or generate 60.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.6%
Values	Daily Returns

Global Advantage Portfolio  vs.  Emerging Markets Portfolio

Global Advantage Por

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global Advantage Portfolio are ranked lower than 16 (%) 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.

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 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.

Pair Trading with Global Advantage and Emerging Markets

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

The idea behind Global Advantage Portfolio and Emerging Markets 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.

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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.