Correlation Between Real Assets and Emerging Markets

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

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

Diversification Opportunities for Real Assets and Emerging Markets

0.75

Correlation Coefficient

Real Assets  Emerging Markets

Poor diversification

The 3 months correlation between Real and Emerging is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Real Assets Portfolio and Emerging Markets Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Por and Real Assets 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 Real Assets Portfolio 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 Por has no effect on the direction of Real Assets i.e., Real Assets and Emerging Markets go up and down completely randomly.

Pair Corralation between Real Assets and Emerging Markets

Assuming the 90 days horizon Real Assets is expected to generate 5.72 times less return on investment than Emerging Markets. But when comparing it to its historical volatility, Real Assets Portfolio is 1.88 times less risky than Emerging Markets. It trades about 0.09 of its potential returns per unit of risk. Emerging Markets Portfolio is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  2,131  in Emerging Markets Portfolio on April 30, 2025 and sell it today you would earn a total of  274.00  from holding Emerging Markets Portfolio or generate 12.86% return on investment over 90 days.

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

Real Assets Portfolio  vs.  Emerging Markets Portfolio

Real Assets Portfolio

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Real Assets Portfolio are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Real Assets is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Emerging Markets Por

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets Portfolio are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental drivers, Emerging Markets showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Real Assets and Emerging Markets

The main advantage of trading using opposite Real Assets and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Real Assets 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 Real Assets Portfolio and Emerging Markets Portfolio 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.