Correlation Between Emerging Markets and Us Micro

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

By analyzing existing cross correlation between Emerging Markets Small and Us Micro Cap, you can compare the effects of market volatilities on Emerging Markets and Us Micro 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 Us Micro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Us Micro.

Diversification Opportunities for Emerging Markets and Us Micro

0.96

Correlation Coefficient

Emerging Markets  Us Micro

Almost no diversification

The 3 months correlation between Emerging and DFSCX is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Small and Us Micro Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Micro Cap 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 Small are associated (or correlated) with Us Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Micro Cap has no effect on the direction of Emerging Markets i.e., Emerging Markets and Us Micro go up and down completely randomly.

Pair Corralation between Emerging Markets and Us Micro

Assuming the 90 days horizon Emerging Markets is expected to generate 1.06 times less return on investment than Us Micro. But when comparing it to its historical volatility, Emerging Markets Small is 1.84 times less risky than Us Micro. It trades about 0.39 of its potential returns per unit of risk. Us Micro Cap is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  2,535  in Us Micro Cap on April 25, 2025 and sell it today you would earn a total of  423.00  from holding Us Micro Cap or generate 16.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

Emerging Markets Small  vs.  Us Micro Cap

Emerging Markets Small

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets Small are ranked lower than 31 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Emerging Markets showed solid returns over the last few months and may actually be approaching a breakup point.

Us Micro Cap

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Us Micro Cap are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Us Micro showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Emerging Markets and Us Micro

The main advantage of trading using opposite Emerging Markets and Us Micro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Us Micro 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 Us Micro will offset losses from the drop in Us Micro's long position.

The idea behind Emerging Markets Small and Us Micro Cap 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 Transaction History module to view history of all your transactions and understand their impact on performance.