Correlation Between Diversified Bond and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Diversified Bond 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 Diversified Bond and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Diversified Bond Fund and Emerging Markets Debt, you can compare the effects of market volatilities on Diversified Bond 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 Diversified Bond with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diversified Bond and Emerging Markets.
Diversification Opportunities for Diversified Bond and Emerging Markets
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Diversified and Emerging is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Bond 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 Diversified Bond 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 Diversified Bond 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 Diversified Bond i.e., Diversified Bond and Emerging Markets go up and down completely randomly.
Pair Corralation between Diversified Bond and Emerging Markets
Assuming the 90 days horizon Diversified Bond Fund is expected to generate 0.77 times more return on investment than Emerging Markets. However, Diversified Bond Fund is 1.3 times less risky than Emerging Markets. It trades about -0.1 of its potential returns per unit of risk. Emerging Markets Debt is currently generating about -0.21 per unit of risk. If you would invest 914.00 in Diversified Bond Fund on January 20, 2025 and sell it today you would lose (9.00) from holding Diversified Bond Fund or give up 0.98% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Diversified Bond Fund vs. Emerging Markets Debt
Performance |
| Timeline |
| Diversified Bond |
| Emerging Markets Debt |
Diversified Bond and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Diversified Bond and Emerging Markets
The main advantage of trading using opposite Diversified Bond and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diversified Bond 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.| Diversified Bond vs. Fidelity Advisor Gold | Diversified Bond vs. Europac Gold Fund | Diversified Bond vs. Global Gold Fund | Diversified Bond vs. Wells Fargo Advantage |
| Emerging Markets vs. Us Government Securities | Emerging Markets vs. Columbia Government Mortgage | Emerging Markets vs. Intermediate Government Bond | Emerging Markets vs. Virtus Seix Government |
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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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