Can any of the company-specific risk be diversified away by investing in both Vanguard Emerging and Brandes 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 Vanguard Emerging and Brandes Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Emerging Markets and Brandes Emerging Markets, you can compare the effects of market volatilities on Vanguard Emerging and Brandes 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 Vanguard Emerging with a short position of Brandes Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Emerging and Brandes Emerging.
Diversification Opportunities for Vanguard Emerging and Brandes Emerging
The 3 months correlation between Vanguard and Brandes is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding VANGUARD EMERGING MARKETS and BRANDES EMERGING MARKETS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brandes Emerging Markets and Vanguard 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 Vanguard Emerging Markets are associated (or correlated) with Brandes Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brandes Emerging Markets has no effect on the direction of Vanguard Emerging i.e., Vanguard Emerging and Brandes Emerging go up and down completely randomly.
Pair Corralation between Vanguard Emerging and Brandes Emerging
Assuming the 90 days horizon Vanguard Emerging Markets is expected to under-perform the Brandes Emerging. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Emerging Markets is 1.07 times less risky than Brandes Emerging. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Brandes Emerging Markets is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 788.00 in Brandes Emerging Markets on September 3, 2023 and sell it today you would earn a total of 6.00 from holding Brandes Emerging Markets or generate 0.76% return on investment over 90 days.
Over the last 90 days Vanguard Emerging Markets has generated negative risk-adjusted returns adding no value to fund investors. 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.
Compared to the overall equity markets, risk-adjusted returns on investments in Brandes Emerging Markets are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Brandes Emerging is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Vanguard Emerging and Brandes Emerging Volatility Contrast
Predicted Return Density
Pair Trading with Vanguard Emerging and Brandes Emerging
The main advantage of trading using opposite Vanguard Emerging and Brandes Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Emerging position performs unexpectedly, Brandes 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 Brandes Emerging will offset losses from the drop in Brandes Emerging's long position.
The idea behind Vanguard Emerging Markets and Brandes 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.
Check out your portfolio center.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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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