Correlation Between California Bond and Emerging Markets

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

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

Diversification Opportunities for California Bond and Emerging Markets

-0.15

Correlation Coefficient

California Bond  Emerging Markets

Good diversification

The 3 months correlation between California and Emerging is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding California Bond Fund 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 California Bond 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 California Bond Fund 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 California Bond i.e., California Bond and Emerging Markets go up and down completely randomly.

Pair Corralation between California Bond and Emerging Markets

Assuming the 90 days horizon California Bond is expected to generate 17.11 times less return on investment than Emerging Markets. But when comparing it to its historical volatility, California Bond Fund is 3.06 times less risky than Emerging Markets. It trades about 0.01 of its potential returns per unit of risk. Emerging Markets Portfolio is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,134  in Emerging Markets Portfolio on September 14, 2024 and sell it today you would earn a total of  39.00  from holding Emerging Markets Portfolio or generate 1.83% return on investment over 90 days.

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

California Bond Fund  vs.  Emerging Markets Portfolio

California Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days California Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, California Bond 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

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets Portfolio are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. 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 California Bond and Emerging Markets

The main advantage of trading using opposite California Bond and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California Bond 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 California Bond Fund 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.