Correlation Between Nuveen California and Emerging Markets

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

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

Diversification Opportunities for Nuveen California and Emerging Markets

0.26

Correlation Coefficient

Nuveen California  Emerging Markets

Modest diversification

The 3 months correlation between Nuveen and Emerging is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Nuveen California Municipal 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 Nuveen California 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 Nuveen California Municipal 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 Nuveen California i.e., Nuveen California and Emerging Markets go up and down completely randomly.

Pair Corralation between Nuveen California and Emerging Markets

Assuming the 90 days horizon Nuveen California is expected to generate 2.95 times less return on investment than Emerging Markets. But when comparing it to its historical volatility, Nuveen California Municipal is 3.92 times less risky than Emerging Markets. It trades about 0.07 of its potential returns per unit of risk. Emerging Markets Portfolio is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,874  in Emerging Markets Portfolio on October 23, 2024 and sell it today you would earn a total of  186.00  from holding Emerging Markets Portfolio or generate 9.93% return on investment over 90 days.

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

Nuveen California Municipal  vs.  Emerging Markets Portfolio

Nuveen California

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nuveen California Municipal has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Nuveen California is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 Nuveen California and Emerging Markets

The main advantage of trading using opposite Nuveen California and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nuveen California 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 Nuveen California Municipal 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.