Correlation Between Banking Fund and Emerging Markets

Can any of the company-specific risk be diversified away by investing in both Banking Fund 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 Banking Fund and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Banking Fund Class and Emerging Markets Bond, you can compare the effects of market volatilities on Banking Fund 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 Banking Fund with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banking Fund and Emerging Markets.

Diversification Opportunities for Banking Fund and Emerging Markets

-0.05

Correlation Coefficient

Banking Fund  Emerging Markets

Good diversification

The 3 months correlation between Banking and Emerging is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Banking Fund Class and Emerging Markets Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Bond and Banking Fund 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 Banking Fund Class 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 Bond has no effect on the direction of Banking Fund i.e., Banking Fund and Emerging Markets go up and down completely randomly.

Pair Corralation between Banking Fund and Emerging Markets

Assuming the 90 days horizon Banking Fund Class is expected to under-perform the Emerging Markets. But the mutual fund apears to be less risky and, when comparing its historical volatility, Banking Fund Class is 1.19 times less risky than Emerging Markets. The mutual fund trades about -0.37 of its potential returns per unit of risk. The Emerging Markets Bond is currently generating about -0.24 of returns per unit of risk over similar time horizon. If you would invest  5,330  in Emerging Markets Bond on September 27, 2024 and sell it today you would lose (472.00) from holding Emerging Markets Bond or give up 8.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Banking Fund Class  vs.  Emerging Markets Bond

Banking Fund Class

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Banking Fund Class are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking signals, Banking Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Emerging Markets Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Emerging Markets Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Banking Fund and Emerging Markets

The main advantage of trading using opposite Banking Fund and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Banking Fund 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.

The idea behind Banking Fund Class and Emerging Markets Bond pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.