Can any of the company-specific risk be diversified away by investing in both Sit Emerging 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 Sit Emerging and Vanguard Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sit Emerging Markets and Vanguard Emerging Markets, you can compare the effects of market volatilities on Sit Emerging 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 Sit Emerging with a short position of Vanguard Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sit Emerging and Vanguard Emerging.
Diversification Opportunities for Sit Emerging and Vanguard Emerging
The 3 months correlation between Sit and Vanguard is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Sit Emerging Markets 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 Sit Emerging 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 Sit Emerging Markets 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 Sit Emerging i.e., Sit Emerging and Vanguard Emerging go up and down completely randomly.
Pair Corralation between Sit Emerging and Vanguard Emerging
Assuming the 90 days horizon Sit Emerging is expected to generate 2.15 times less return on investment than Vanguard Emerging. In addition to that, Sit Emerging is 1.26 times more volatile than Vanguard Emerging Markets. It trades about 0.04 of its total potential returns per unit of risk. Vanguard Emerging Markets is currently generating about 0.12 per unit of volatility. If you would invest 2,640 in Vanguard Emerging Markets on March 6, 2024 and sell it today you would earn a total of 124.00 from holding Vanguard Emerging Markets or generate 4.7% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Sit Emerging Markets are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Sit Emerging 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.