Correlation Between Low Duration and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Low Duration 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 Low Duration and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Low Duration Fund and Emerging Markets Bond, you can compare the effects of market volatilities on Low Duration 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 Low Duration with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Low Duration and Emerging Markets.
Diversification Opportunities for Low Duration and Emerging Markets
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Low and Emerging is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Low Duration 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 Low Duration 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 Low Duration 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 Low Duration i.e., Low Duration and Emerging Markets go up and down completely randomly.
Pair Corralation between Low Duration and Emerging Markets
Assuming the 90 days horizon Low Duration Fund is expected to under-perform the Emerging Markets. But the mutual fund apears to be less risky and, when comparing its historical volatility, Low Duration Fund is 3.47 times less risky than Emerging Markets. The mutual fund trades about -0.06 of its potential returns per unit of risk. The Emerging Markets Bond is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 849.00 in Emerging Markets Bond on August 26, 2024 and sell it today you would earn a total of 3.00 from holding Emerging Markets Bond or generate 0.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Low Duration Fund vs. Emerging Markets Bond
Performance |
| Timeline |
| Low Duration |
| Emerging Markets Bond |
Low Duration and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Low Duration and Emerging Markets
The main advantage of trading using opposite Low Duration and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Low Duration 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.| Low Duration vs. Real Return Fund | Low Duration vs. Pimco Foreign Bond | Low Duration vs. Commodityrealreturn Strategy Fund | Low Duration vs. High Yield Fund |
| 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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