Correlation Between Emerging Markets and Investment Grade
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Investment Grade 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 Investment Grade 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 Investment Grade Porate, you can compare the effects of market volatilities on Emerging Markets and Investment Grade 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 Investment Grade. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Investment Grade.
Diversification Opportunities for Emerging Markets and Investment Grade
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Emerging and Investment is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Bond and Investment Grade Porate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investment Grade Porate 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 Investment Grade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investment Grade Porate has no effect on the direction of Emerging Markets i.e., Emerging Markets and Investment Grade go up and down completely randomly.
Pair Corralation between Emerging Markets and Investment Grade
Assuming the 90 days horizon Emerging Markets Bond is expected to generate 0.92 times more return on investment than Investment Grade. However, Emerging Markets Bond is 1.09 times less risky than Investment Grade. It trades about 0.1 of its potential returns per unit of risk. Investment Grade Porate is currently generating about 0.05 per unit of risk. If you would invest 713.00 in Emerging Markets Bond on September 2, 2024 and sell it today you would earn a total of 147.00 from holding Emerging Markets Bond or generate 20.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerging Markets Bond vs. Investment Grade Porate
Performance |
| Timeline |
| Emerging Markets Bond |
| Investment Grade Porate |
Emerging Markets and Investment Grade Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and Investment Grade
The main advantage of trading using opposite Emerging Markets and Investment Grade positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Investment Grade 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 Investment Grade will offset losses from the drop in Investment Grade'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 |
| Investment Grade vs. Calamos Short Term Bond | Investment Grade vs. Inflation Protected Bond Fund | Investment Grade vs. Bbh Intermediate Municipal | Investment Grade vs. Ab Global Bond |
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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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