Correlation Between International Small and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both International Small 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 International Small and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Small Cap and Emerging Markets Portfolio, you can compare the effects of market volatilities on International Small 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 International Small with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Small and Emerging Markets.
Diversification Opportunities for International Small and Emerging Markets
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between International and Emerging is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding International Small Cap 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 International Small 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 International Small Cap 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 International Small i.e., International Small and Emerging Markets go up and down completely randomly.
Pair Corralation between International Small and Emerging Markets
Assuming the 90 days horizon International Small is expected to generate 1.5 times less return on investment than Emerging Markets. But when comparing it to its historical volatility, International Small Cap is 1.17 times less risky than Emerging Markets. It trades about 0.15 of its potential returns per unit of risk. Emerging Markets Portfolio is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 2,966 in Emerging Markets Portfolio on May 2, 2025 and sell it today you would earn a total of 180.00 from holding Emerging Markets Portfolio or generate 6.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Small Cap vs. Emerging Markets Portfolio
Performance |
| Timeline |
| International Small Cap |
| Emerging Markets Por |
International Small and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Small and Emerging Markets
The main advantage of trading using opposite International Small and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Small 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.| International Small vs. Ab Global E | International Small vs. Ab Global E | International Small vs. Ab Global E | International Small vs. Ab All Market |
| Emerging Markets vs. Rational Strategic Allocation | Emerging Markets vs. Semiconductor Ultrasector Profund | Emerging Markets vs. Guidemark Large Cap | Emerging Markets vs. Siit Large Cap |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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