Correlation Between Short Duration and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Short Duration 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 Short Duration and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Short Duration Fund and Emerging Markets Debt, you can compare the effects of market volatilities on Short Duration 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 Short Duration with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Duration and Emerging Markets.
Diversification Opportunities for Short Duration and Emerging Markets
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Short and Emerging is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Short Duration Fund and Emerging Markets Debt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Debt and Short Duration 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 Short Duration Fund 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 Debt has no effect on the direction of Short Duration i.e., Short Duration and Emerging Markets go up and down completely randomly.
Pair Corralation between Short Duration and Emerging Markets
Assuming the 90 days horizon Short Duration is expected to generate 2.23 times less return on investment than Emerging Markets. But when comparing it to its historical volatility, Short Duration Fund is 2.96 times less risky than Emerging Markets. It trades about 0.12 of its potential returns per unit of risk. Emerging Markets Debt is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 892.00 in Emerging Markets Debt on September 12, 2024 and sell it today you would earn a total of 4.00 from holding Emerging Markets Debt or generate 0.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Short Duration Fund vs. Emerging Markets Debt
Performance |
| Timeline |
| Short Duration |
| Emerging Markets Debt |
Short Duration and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short Duration and Emerging Markets
The main advantage of trading using opposite Short Duration and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short Duration 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' long position.| Short Duration vs. Diversified Bond Fund | Short Duration vs. High Yield Fund Investor | Short Duration vs. Short Duration Inflation | Short Duration vs. Core Plus Fund |
| Emerging Markets vs. Fidelity New Markets | Emerging Markets vs. Fidelity New Markets | Emerging Markets vs. Fidelity New Markets | Emerging Markets vs. SCOR PK |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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