Correlation Between Dow 2x and Emerging Markets

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Can any of the company-specific risk be diversified away by investing in both Dow 2x 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 Dow 2x and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow 2x Strategy and Emerging Markets Portfolio, you can compare the effects of market volatilities on Dow 2x 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 Dow 2x with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow 2x and Emerging Markets.

Diversification Opportunities for Dow 2x and Emerging Markets

DowEmergingDiversified AwayDowEmergingDiversified Away100%
0.23
  Correlation Coefficient

Modest diversification

The 3 months correlation between Dow and Emerging is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Dow 2x Strategy 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 Dow 2x 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 Dow 2x Strategy 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 Dow 2x i.e., Dow 2x and Emerging Markets go up and down completely randomly.

Pair Corralation between Dow 2x and Emerging Markets

Assuming the 90 days horizon Dow 2x Strategy is expected to generate 2.38 times more return on investment than Emerging Markets. However, Dow 2x is 2.38 times more volatile than Emerging Markets Portfolio. It trades about -0.01 of its potential returns per unit of risk. Emerging Markets Portfolio is currently generating about -0.16 per unit of risk. If you would invest  17,719  in Dow 2x Strategy on October 19, 2024 and sell it today you would lose (285.00) from holding Dow 2x Strategy or give up 1.61% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Dow 2x Strategy  vs.  Emerging Markets Portfolio

 Performance 
JavaScript chart by amCharts 3.21.15NovDec2025 -50510
JavaScript chart by amCharts 3.21.15RYCVX MGEMX
       Timeline  
Dow 2x Strategy 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Dow 2x Strategy has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Dow 2x is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan165170175180185190
Emerging Markets Por 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 latest weak performance, the Fund's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan2121.52222.523

Dow 2x and Emerging Markets Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-2.78-2.08-1.38-0.690.00.681.372.052.74 0.10.20.30.40.50.6
JavaScript chart by amCharts 3.21.15RYCVX MGEMX
       Returns  

Pair Trading with Dow 2x and Emerging Markets

The main advantage of trading using opposite Dow 2x and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow 2x 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 Dow 2x Strategy 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.
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..

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