Correlation Between Global Core and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Global Core 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 Global Core and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global E Portfolio and Emerging Markets Portfolio, you can compare the effects of market volatilities on Global Core 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 Global Core with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Core and Emerging Markets.
Diversification Opportunities for Global Core and Emerging Markets
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Global and Emerging is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Global E Portfolio 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 Global Core 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 Global E Portfolio 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 Global Core i.e., Global Core and Emerging Markets go up and down completely randomly.
Pair Corralation between Global Core and Emerging Markets
Assuming the 90 days horizon Global Core is expected to generate 1.18 times less return on investment than Emerging Markets. In addition to that, Global Core is 1.36 times more volatile than Emerging Markets Portfolio. It trades about 0.09 of its total potential returns per unit of risk. Emerging Markets Portfolio is currently generating about 0.15 per unit of volatility. If you would invest 2,100 in Emerging Markets Portfolio on March 30, 2025 and sell it today you would earn a total of 266.00 from holding Emerging Markets Portfolio or generate 12.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 98.41% |
| Values | Daily Returns |
Global E Portfolio vs. Emerging Markets Portfolio
Performance |
| Timeline |
| Global E Portfolio |
| Emerging Markets Por |
Global Core and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Global Core and Emerging Markets
The main advantage of trading using opposite Global Core and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Core 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.| Global Core vs. Guidemark Large Cap | Global Core vs. Fidelity Large Cap | Global Core vs. Blackrock Large Cap | Global Core vs. Dreyfus Large Cap |
| Emerging Markets vs. Putnam Diversified Income | Emerging Markets vs. Aqr Diversified Arbitrage | Emerging Markets vs. Fidelity Advisor Diversified | Emerging Markets vs. Harbor Diversified International |
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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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