Correlation Between Emerging Markets and New World
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and New World 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 Emerging Markets and New World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emerging Markets Fund and New World Fund, you can compare the effects of market volatilities on Emerging Markets and New World 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 Emerging Markets with a short position of New World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and New World.
Diversification Opportunities for Emerging Markets and New World
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Emerging and New is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Fund and New World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New World Fund and Emerging Markets 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 Emerging Markets Fund are associated (or correlated) with New World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New World Fund has no effect on the direction of Emerging Markets i.e., Emerging Markets and New World go up and down completely randomly.
Pair Corralation between Emerging Markets and New World
Assuming the 90 days horizon Emerging Markets Fund is expected to under-perform the New World. In addition to that, Emerging Markets is 1.12 times more volatile than New World Fund. It trades about -0.11 of its total potential returns per unit of risk. New World Fund is currently generating about -0.12 per unit of volatility. If you would invest 7,479 in New World Fund on January 19, 2024 and sell it today you would lose (126.00) from holding New World Fund or give up 1.68% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerging Markets Fund vs. New World Fund
Performance |
| Timeline |
| Emerging Markets |
| New World Fund |
Emerging Markets and New World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and New World
The main advantage of trading using opposite Emerging Markets and New World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, New World 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 New World will offset losses from the drop in New World's long position.| Emerging Markets vs. Vanguard Emerging Markets | Emerging Markets vs. American Funds New | Emerging Markets vs. American Funds New | Emerging Markets vs. New World Fund |
| New World vs. Vanguard Emerging Markets | New World vs. American Funds New | New World vs. American Funds New | New World vs. New World Fund |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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