Correlation Between Corporate Bond and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Corporate 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 Corporate 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 Corporate Bond Portfolio and Emerging Markets Equity, you can compare the effects of market volatilities on Corporate 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 Corporate Bond with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Corporate Bond and Emerging Markets.
Diversification Opportunities for Corporate Bond and Emerging Markets
0.12 | Correlation Coefficient |
Average diversification
The 3 months correlation between Corporate and Emerging is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Corporate Bond Portfolio and Emerging Markets Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Equity and Corporate 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 Corporate Bond Portfolio 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 Equity has no effect on the direction of Corporate Bond i.e., Corporate Bond and Emerging Markets go up and down completely randomly.
Pair Corralation between Corporate Bond and Emerging Markets
Assuming the 90 days horizon Corporate Bond Portfolio is expected to generate 0.5 times more return on investment than Emerging Markets. However, Corporate Bond Portfolio is 2.0 times less risky than Emerging Markets. It trades about 0.09 of its potential returns per unit of risk. Emerging Markets Equity is currently generating about -0.27 per unit of risk. If you would invest 1,051 in Corporate Bond Portfolio on September 4, 2024 and sell it today you would earn a total of 8.00 from holding Corporate Bond Portfolio or generate 0.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Corporate Bond Portfolio vs. Emerging Markets Equity
Performance |
| Timeline |
| Corporate Bond Portfolio |
| Emerging Markets Equity |
Corporate Bond and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Corporate Bond and Emerging Markets
The main advantage of trading using opposite Corporate Bond and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Corporate 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.| Corporate Bond vs. Emerging Markets Equity | Corporate Bond vs. Global Fixed Income | Corporate Bond vs. Global Fixed Income | Corporate Bond vs. Global Fixed Income |
| Emerging Markets vs. General Money Market | Emerging Markets vs. Franklin Government Money | Emerging Markets vs. John Hancock Money | Emerging Markets vs. Aig Government Money |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
Other Complementary Tools
| Alpha Finder Use alpha and beta coefficients to find investment opportunities after accounting for the risk | |
| Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios | |
| Theme Ratings Determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
| Portfolio Anywhere Track or share privately all of your investments from the convenience of any device | |
| Money Flow Index Determine momentum by analyzing Money Flow Index and other technical indicators |