Correlation Between New World and International Emerging
Can any of the company-specific risk be diversified away by investing in both New World and International 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 New World and International Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New World Fund and International Emerging Markets, you can compare the effects of market volatilities on New World and International 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 New World with a short position of International Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of New World and International Emerging.
Diversification Opportunities for New World and International Emerging
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between New and International is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding New World Fund and International Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Emerging and New World 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 New World Fund are associated (or correlated) with International Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Emerging has no effect on the direction of New World i.e., New World and International Emerging go up and down completely randomly.
Pair Corralation between New World and International Emerging
Assuming the 90 days horizon New World Fund is expected to under-perform the International Emerging. In addition to that, New World is 1.6 times more volatile than International Emerging Markets. It trades about -0.32 of its total potential returns per unit of risk. International Emerging Markets is currently generating about -0.24 per unit of volatility. If you would invest 2,701 in International Emerging Markets on October 9, 2024 and sell it today you would lose (83.00) from holding International Emerging Markets or give up 3.07% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
New World Fund vs. International Emerging Markets
Performance |
Timeline |
New World Fund |
International Emerging |
New World and International Emerging Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with New World and International Emerging
The main advantage of trading using opposite New World and International Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New World position performs unexpectedly, International 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 International Emerging will offset losses from the drop in International Emerging's long position.New World vs. Smallcap World Fund | New World vs. Investment Of America | New World vs. Europacific Growth Fund | New World vs. Capital World Growth |
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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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