Correlation Between Real Return and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Real Return 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 Real Return and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Real Return Fund and Emerging Markets Bond, you can compare the effects of market volatilities on Real Return 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 Real Return with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Real Return and Emerging Markets.
Diversification Opportunities for Real Return and Emerging Markets
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Real and Emerging is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Real Return Fund and Emerging Markets Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Bond and Real Return 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 Real Return 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 Bond has no effect on the direction of Real Return i.e., Real Return and Emerging Markets go up and down completely randomly.
Pair Corralation between Real Return and Emerging Markets
Assuming the 90 days horizon Real Return is expected to generate 2.14 times less return on investment than Emerging Markets. But when comparing it to its historical volatility, Real Return Fund is 1.11 times less risky than Emerging Markets. It trades about 0.07 of its potential returns per unit of risk. Emerging Markets Bond is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 756.00 in Emerging Markets Bond on August 26, 2024 and sell it today you would earn a total of 96.00 from holding Emerging Markets Bond or generate 12.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Real Return Fund vs. Emerging Markets Bond
Performance |
| Timeline |
| Real Return Fund |
| Emerging Markets Bond |
Real Return and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Real Return and Emerging Markets
The main advantage of trading using opposite Real Return and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Real Return 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.| Real Return vs. Pimco Rae Worldwide | Real Return vs. Pimco Rae Worldwide | Real Return vs. Pimco Rae Worldwide | Real Return vs. Pimco Rae Worldwide |
| Emerging Markets vs. Pimco Rae Worldwide | Emerging Markets vs. Pimco Rae Worldwide | Emerging Markets vs. Pimco Rae Worldwide | Emerging Markets vs. Pimco Rae Worldwide |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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