Correlation Between Real Assets and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Real Assets 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 Real Assets and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Real Assets Portfolio and Emerging Markets Portfolio, you can compare the effects of market volatilities on Real Assets 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 Real Assets with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Real Assets and Emerging Markets.
Diversification Opportunities for Real Assets and Emerging Markets
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Real and Emerging is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Real Assets 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 Real Assets 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 Real Assets 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 Real Assets i.e., Real Assets and Emerging Markets go up and down completely randomly.
Pair Corralation between Real Assets and Emerging Markets
Assuming the 90 days horizon Real Assets is expected to generate 2.28 times less return on investment than Emerging Markets. But when comparing it to its historical volatility, Real Assets Portfolio is 2.28 times less risky than Emerging Markets. It trades about 0.23 of its potential returns per unit of risk. Emerging Markets Portfolio is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 2,257 in Emerging Markets Portfolio on March 30, 2025 and sell it today you would earn a total of 93.00 from holding Emerging Markets Portfolio or generate 4.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Real Assets Portfolio vs. Emerging Markets Portfolio
Performance |
| Timeline |
| Real Assets Portfolio |
| Emerging Markets Por |
Real Assets and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Real Assets and Emerging Markets
The main advantage of trading using opposite Real Assets and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Real Assets 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.| Real Assets vs. Nt International Small Mid | Real Assets vs. Scout Small Cap | Real Assets vs. Siit Small Cap | Real Assets vs. Lebenthal Lisanti Small |
| 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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