Correlation Between Emerging Markets and Diversified Bond
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Diversified Bond 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 Emerging Markets and Diversified Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emerging Markets Fund and Diversified Bond Fund, you can compare the effects of market volatilities on Emerging Markets and Diversified Bond 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 Emerging Markets with a short position of Diversified Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Diversified Bond.
Diversification Opportunities for Emerging Markets and Diversified Bond
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Emerging and Diversified is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Fund and Diversified Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Bond and Emerging Markets 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 Emerging Markets Fund are associated (or correlated) with Diversified Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Bond has no effect on the direction of Emerging Markets i.e., Emerging Markets and Diversified Bond go up and down completely randomly.
Pair Corralation between Emerging Markets and Diversified Bond
Assuming the 90 days horizon Emerging Markets Fund is expected to under-perform the Diversified Bond. In addition to that, Emerging Markets is 2.13 times more volatile than Diversified Bond Fund. It trades about -0.08 of its total potential returns per unit of risk. Diversified Bond Fund is currently generating about -0.07 per unit of volatility. If you would invest 912.00 in Diversified Bond Fund on September 21, 2024 and sell it today you would lose (5.00) from holding Diversified Bond Fund or give up 0.55% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Emerging Markets Fund vs. Diversified Bond Fund
Performance |
| Timeline |
| Emerging Markets |
| Diversified Bond |
Emerging Markets and Diversified Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and Diversified Bond
The main advantage of trading using opposite Emerging Markets and Diversified Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Diversified Bond 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 Diversified Bond will offset losses from the drop in Diversified Bond's long position.| Emerging Markets vs. Heritage Fund Investor | Emerging Markets vs. Real Estate Fund | Emerging Markets vs. Global Growth Fund | Emerging Markets vs. Utilities Fund Investor |
| Diversified Bond vs. Mid Cap Value | Diversified Bond vs. Equity Growth Fund | Diversified Bond vs. Income Growth Fund | Diversified Bond vs. Emerging Markets Fund |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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