Correlation Between World Core and Emerging Markets

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

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

Diversification Opportunities for World Core and Emerging Markets

0.95

Correlation Coefficient

World Core  Emerging Markets

Almost no diversification

The 3 months correlation between World and Emerging is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding World Core Equity and Emerging Markets Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Value and World Core 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 World Core 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 Value has no effect on the direction of World Core i.e., World Core and Emerging Markets go up and down completely randomly.

Pair Corralation between World Core and Emerging Markets

Assuming the 90 days horizon World Core Equity is expected to generate 1.02 times more return on investment than Emerging Markets. However, World Core is 1.02 times more volatile than Emerging Markets Value. It trades about 0.22 of its potential returns per unit of risk. Emerging Markets Value is currently generating about 0.22 per unit of risk. If you would invest  2,646  in World Core Equity on July 8, 2025 and sell it today you would earn a total of  198.00  from holding World Core Equity or generate 7.48% return on investment over 90 days.

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

World Core Equity  vs.  Emerging Markets Value

World Core Equity

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in World Core Equity are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, World Core may actually be approaching a critical reversion point that can send shares even higher in November 2025.

Emerging Markets Value

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets Value are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Emerging Markets may actually be approaching a critical reversion point that can send shares even higher in November 2025.

Pair Trading with World Core and Emerging Markets

The main advantage of trading using opposite World Core and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if World Core 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 World Core Equity and Emerging Markets Value 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.