Correlation Between M Large and Emerging Markets

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

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

Diversification Opportunities for M Large and Emerging Markets

-0.66

Correlation Coefficient

M Large  Emerging Markets

Excellent diversification

The 3 months correlation between MTCGX and Emerging is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding M Large Cap and Emerging Markets Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Bond and M Large 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 M Large Cap 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 Bond has no effect on the direction of M Large i.e., M Large and Emerging Markets go up and down completely randomly.

Pair Corralation between M Large and Emerging Markets

Assuming the 90 days horizon M Large Cap is expected to under-perform the Emerging Markets. In addition to that, M Large is 5.74 times more volatile than Emerging Markets Bond. It trades about -0.09 of its total potential returns per unit of risk. Emerging Markets Bond is currently generating about 0.15 per unit of volatility. If you would invest  830.00  in Emerging Markets Bond on December 29, 2024 and sell it today you would earn a total of  22.00  from holding Emerging Markets Bond or generate 2.65% return on investment over 90 days.

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

M Large Cap  vs.  Emerging Markets Bond

M Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days M Large Cap 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.

Emerging Markets Bond

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets Bond are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, 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 M Large and Emerging Markets

The main advantage of trading using opposite M Large and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if M Large 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 M Large Cap and Emerging Markets Bond 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.