Correlation Between Moderately Aggressive and Unconstrained Emerging

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

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

Diversification Opportunities for Moderately Aggressive and Unconstrained Emerging

0.95

Correlation Coefficient

Moderately Aggressive  Unconstrained Emerging

Almost no diversification

The 3 months correlation between Moderately and Unconstrained is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Moderately Aggressive Balanced and Unconstrained Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unconstrained Emerging and Moderately Aggressive 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 Moderately Aggressive Balanced are associated (or correlated) with Unconstrained Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unconstrained Emerging has no effect on the direction of Moderately Aggressive i.e., Moderately Aggressive and Unconstrained Emerging go up and down completely randomly.

Pair Corralation between Moderately Aggressive and Unconstrained Emerging

Assuming the 90 days horizon Moderately Aggressive Balanced is expected to generate 1.94 times more return on investment than Unconstrained Emerging. However, Moderately Aggressive is 1.94 times more volatile than Unconstrained Emerging Markets. It trades about 0.3 of its potential returns per unit of risk. Unconstrained Emerging Markets is currently generating about 0.33 per unit of risk. If you would invest  1,153  in Moderately Aggressive Balanced on April 30, 2025 and sell it today you would earn a total of  111.00  from holding Moderately Aggressive Balanced or generate 9.63% return on investment over 90 days.

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

Moderately Aggressive Balanced  vs.  Unconstrained Emerging Markets

Moderately Aggressive

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Moderately Aggressive Balanced are ranked lower than 23 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Moderately Aggressive may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Unconstrained Emerging

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Unconstrained Emerging Markets are ranked lower than 26 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Unconstrained Emerging is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Moderately Aggressive and Unconstrained Emerging

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

The idea behind Moderately Aggressive Balanced and Unconstrained 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.