Correlation Between Us Vector and Emerging Markets

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

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

Diversification Opportunities for Us Vector and Emerging Markets

0.68

Correlation Coefficient

Us Vector  Emerging Markets

Poor diversification

The 3 months correlation between DFVEX and Emerging is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Us Vector Equity and Emerging Markets E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets E and Us Vector 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 Us Vector Equity 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 E has no effect on the direction of Us Vector i.e., Us Vector and Emerging Markets go up and down completely randomly.

Pair Corralation between Us Vector and Emerging Markets

Assuming the 90 days horizon Us Vector is expected to generate 1.15 times less return on investment than Emerging Markets. In addition to that, Us Vector is 1.98 times more volatile than Emerging Markets E. It trades about 0.2 of its total potential returns per unit of risk. Emerging Markets E is currently generating about 0.46 per unit of volatility. If you would invest  2,153  in Emerging Markets E on February 6, 2025 and sell it today you would earn a total of  268.00  from holding Emerging Markets E or generate 12.45% return on investment over 90 days.

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

Us Vector Equity  vs.  Emerging Markets E

Us Vector Equity

Risk-Adjusted Performance

Very Weak

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

Emerging Markets E

Risk-Adjusted Performance

Insignificant

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

Pair Trading with Us Vector and Emerging Markets

The main advantage of trading using opposite Us Vector and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Us Vector 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 Us Vector Equity and Emerging Markets E 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.