Can any of the company-specific risk be diversified away by investing in both VANGUARD EMERGING and EMERGING MARKETS 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 EMERGING MARKETS 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 EMERGING MARKETS FUND, you can compare the effects of market volatilities on VANGUARD EMERGING and EMERGING MARKETS 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 EMERGING MARKETS. Check out your portfolio center. Please also check ongoing floating volatility patterns of VANGUARD EMERGING and EMERGING MARKETS.
Diversification Opportunities for VANGUARD EMERGING and EMERGING MARKETS
The 3 months correlation between VANGUARD and EMERGING is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding VANGUARD EMERGING MARKETS and EMERGING MARKETS FUND in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMERGING MARKETS FUND 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 EMERGING MARKETS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMERGING MARKETS FUND has no effect on the direction of VANGUARD EMERGING i.e., VANGUARD EMERGING and EMERGING MARKETS go up and down completely randomly.
Pair Corralation between VANGUARD EMERGING and EMERGING MARKETS
Assuming the 90 days horizon VANGUARD EMERGING MARKETS is expected to generate 1.0 times more return on investment than EMERGING MARKETS. However, VANGUARD EMERGING is 1.0 times more volatile than EMERGING MARKETS FUND. It trades about -0.12 of its potential returns per unit of risk. EMERGING MARKETS FUND is currently generating about -0.23 per unit of risk. If you would invest 2,547 in VANGUARD EMERGING MARKETS on June 28, 2023 and sell it today you would lose (47.00) from holding VANGUARD EMERGING MARKETS or give up 1.85% of portfolio value 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 forward indicators, VANGUARD EMERGING is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Over the last 90 days EMERGING MARKETS FUND has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, EMERGING MARKETS is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
VANGUARD EMERGING and EMERGING MARKETS Volatility Contrast
Predicted Return Density
Pair Trading with VANGUARD EMERGING and EMERGING MARKETS
The main advantage of trading using opposite VANGUARD EMERGING and EMERGING MARKETS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VANGUARD EMERGING position performs unexpectedly, EMERGING MARKETS 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 EMERGING MARKETS will offset losses from the drop in EMERGING MARKETS's long position.
The idea behind VANGUARD EMERGING MARKETS and EMERGING MARKETS FUND 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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