Correlation Between Emerging Markets and Focused Dynamic

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

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

Diversification Opportunities for Emerging Markets and Focused Dynamic

0.82

Correlation Coefficient

Emerging Markets  Focused Dynamic

Very poor diversification

The 3 months correlation between Emerging and Focused is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Fund and Focused Dynamic Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Focused Dynamic Growth 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 Fund are associated (or correlated) with Focused Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Focused Dynamic Growth has no effect on the direction of Emerging Markets i.e., Emerging Markets and Focused Dynamic go up and down completely randomly.

Pair Corralation between Emerging Markets and Focused Dynamic

Assuming the 90 days horizon Emerging Markets is expected to generate 2.41 times less return on investment than Focused Dynamic. But when comparing it to its historical volatility, Emerging Markets Fund is 1.52 times less risky than Focused Dynamic. It trades about 0.05 of its potential returns per unit of risk. Focused Dynamic Growth is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,010  in Focused Dynamic Growth on February 19, 2025 and sell it today you would earn a total of  2,853  from holding Focused Dynamic Growth or generate 71.15% return on investment over 90 days.

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

Emerging Markets Fund  vs.  Focused Dynamic Growth

Emerging Markets

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Emerging Markets is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Focused Dynamic Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Focused Dynamic Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Focused Dynamic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Emerging Markets and Focused Dynamic

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

The idea behind Emerging Markets Fund and Focused Dynamic Growth 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.