Correlation Between Global Alpha and Emerging Markets

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

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

Diversification Opportunities for Global Alpha and Emerging Markets

0.97

Correlation Coefficient

Global Alpha  Emerging Markets

Almost no diversification

The 3 months correlation between Global and Emerging is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding The Global Alpha and The Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets and Global Alpha 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 The Global Alpha 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 has no effect on the direction of Global Alpha i.e., Global Alpha and Emerging Markets go up and down completely randomly.

Pair Corralation between Global Alpha and Emerging Markets

Assuming the 90 days horizon The Global Alpha is expected to generate 1.08 times more return on investment than Emerging Markets. However, Global Alpha is 1.08 times more volatile than The Emerging Markets. It trades about 0.24 of its potential returns per unit of risk. The Emerging Markets is currently generating about 0.18 per unit of risk. If you would invest  1,594  in The Global Alpha on May 5, 2025 and sell it today you would earn a total of  220.00  from holding The Global Alpha or generate 13.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

The Global Alpha  vs.  The Emerging Markets

Global Alpha

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Global Alpha are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Global Alpha showed solid returns over the last few months and may actually be approaching a breakup point.

Emerging Markets

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Emerging Markets are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Emerging Markets may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Global Alpha and Emerging Markets

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

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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.