Correlation Between Balanced Allocation and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Balanced Allocation 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 Balanced Allocation and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Balanced Allocation Fund and Emerging Markets Equity, you can compare the effects of market volatilities on Balanced Allocation 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 Balanced Allocation with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Balanced Allocation and Emerging Markets.
Diversification Opportunities for Balanced Allocation and Emerging Markets
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Balanced and Emerging is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Allocation Fund and Emerging Markets Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Equity and Balanced Allocation 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 Balanced Allocation 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 Equity has no effect on the direction of Balanced Allocation i.e., Balanced Allocation and Emerging Markets go up and down completely randomly.
Pair Corralation between Balanced Allocation and Emerging Markets
Assuming the 90 days horizon Balanced Allocation is expected to generate 2.06 times less return on investment than Emerging Markets. But when comparing it to its historical volatility, Balanced Allocation Fund is 2.3 times less risky than Emerging Markets. It trades about 0.24 of its potential returns per unit of risk. Emerging Markets Equity is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 1,034 in Emerging Markets Equity on May 29, 2025 and sell it today you would earn a total of 105.00 from holding Emerging Markets Equity or generate 10.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Balanced Allocation Fund vs. Emerging Markets Equity
Performance |
| Timeline |
| Balanced Allocation |
| Emerging Markets Equity |
Balanced Allocation and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Balanced Allocation and Emerging Markets
The main advantage of trading using opposite Balanced Allocation and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Balanced Allocation 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.| Balanced Allocation vs. Growth Allocation Fund | Balanced Allocation vs. Defensive Market Strategies | Balanced Allocation vs. Defensive Market Strategies | Balanced Allocation vs. Value Equity Investor |
| Emerging Markets vs. Gmo Global Equity | Emerging Markets vs. Legg Mason Global | Emerging Markets vs. Calamos Global Growth | Emerging Markets vs. Calvert Global Energy |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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