Correlation Between Emerging Markets and Government Bond
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Government 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 Government Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emerging Markets Portfolio and Government Bond Fund, you can compare the effects of market volatilities on Emerging Markets and Government 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 Government Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Government Bond.
Diversification Opportunities for Emerging Markets and Government Bond
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Emerging and Government is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Portfolio and Government Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government 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 Portfolio are associated (or correlated) with Government Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Bond has no effect on the direction of Emerging Markets i.e., Emerging Markets and Government Bond go up and down completely randomly.
Pair Corralation between Emerging Markets and Government Bond
Assuming the 90 days horizon Emerging Markets Portfolio is expected to generate 1.98 times more return on investment than Government Bond. However, Emerging Markets is 1.98 times more volatile than Government Bond Fund. It trades about 0.05 of its potential returns per unit of risk. Government Bond Fund is currently generating about 0.02 per unit of risk. If you would invest 1,838 in Emerging Markets Portfolio on August 30, 2024 and sell it today you would earn a total of 337.00 from holding Emerging Markets Portfolio or generate 18.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerging Markets Portfolio vs. Government Bond Fund
Performance |
| Timeline |
| Emerging Markets Por |
| Government Bond |
Emerging Markets and Government Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and Government Bond
The main advantage of trading using opposite Emerging Markets and Government Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Government 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 Government Bond will offset losses from the drop in Government Bond's long position.| Emerging Markets vs. Mfs Technology Fund | Emerging Markets vs. Allianzgi Technology Fund | Emerging Markets vs. Firsthand Technology Opportunities | Emerging Markets vs. Hennessy Technology Fund |
| Government Bond vs. Versatile Bond Portfolio | Government Bond vs. Ambrus Core Bond | Government Bond vs. Ms Global Fixed | Government Bond vs. Blrc Sgy Mnp |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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