Correlation Between Emerging Markets and High Yield
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and High Yield 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 High Yield into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emerging Markets Bond and High Yield Fund, you can compare the effects of market volatilities on Emerging Markets and High Yield 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 High Yield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and High Yield.
Diversification Opportunities for Emerging Markets and High Yield
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Emerging and High is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Bond and High Yield Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Fund 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 Bond are associated (or correlated) with High Yield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Yield Fund has no effect on the direction of Emerging Markets i.e., Emerging Markets and High Yield go up and down completely randomly.
Pair Corralation between Emerging Markets and High Yield
Assuming the 90 days horizon Emerging Markets Bond is expected to generate 1.61 times more return on investment than High Yield. However, Emerging Markets is 1.61 times more volatile than High Yield Fund. It trades about 0.14 of its potential returns per unit of risk. High Yield Fund is currently generating about 0.2 per unit of risk. If you would invest 815.00 in Emerging Markets Bond on September 1, 2024 and sell it today you would earn a total of 45.00 from holding Emerging Markets Bond or generate 5.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.21% |
| Values | Daily Returns |
Emerging Markets Bond vs. High Yield Fund
Performance |
| Timeline |
| Emerging Markets Bond |
| High Yield Fund |
Emerging Markets and High Yield Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and High Yield
The main advantage of trading using opposite Emerging Markets and High Yield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, High Yield 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 High Yield will offset losses from the drop in High Yield's long position.| Emerging Markets vs. Pimco Rae Worldwide | Emerging Markets vs. Pimco Rae Worldwide | Emerging Markets vs. Pimco Rae Worldwide | Emerging Markets vs. Pimco Rae Worldwide |
| High Yield vs. Emerging Markets Bond | High Yield vs. Pimco Foreign Bond | High Yield vs. Real Return Fund | High Yield vs. Low Duration 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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