Can any of the company-specific risk be diversified away by investing in both Harding Loevner and Vanguard 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 Harding Loevner and Vanguard Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Harding Loevner Frontier and Vanguard Emerging Markets, you can compare the effects of market volatilities on Harding Loevner and Vanguard 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 Harding Loevner with a short position of Vanguard Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Harding Loevner and Vanguard Emerging.
Diversification Opportunities for Harding Loevner and Vanguard Emerging
The 3 months correlation between Harding and Vanguard is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Harding Loevner Frontier and Vanguard Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Emerging Markets and Harding Loevner 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 Harding Loevner Frontier are associated (or correlated) with Vanguard Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Emerging Markets has no effect on the direction of Harding Loevner i.e., Harding Loevner and Vanguard Emerging go up and down completely randomly.
Pair Corralation between Harding Loevner and Vanguard Emerging
Assuming the 90 days horizon Harding Loevner is expected to generate 18.0 times less return on investment than Vanguard Emerging. But when comparing it to its historical volatility, Harding Loevner Frontier is 1.25 times less risky than Vanguard Emerging. It trades about 0.0 of its potential returns per unit of risk. Vanguard Emerging Markets is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 2,754 in Vanguard Emerging Markets on March 6, 2024 and sell it today you would earn a total of 10.00 from holding Vanguard Emerging Markets or generate 0.36% return on investment over 90 days.
Over the last 90 days Harding Loevner Frontier has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, Harding Loevner is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Emerging Markets are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Vanguard Emerging is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.