Correlation Between Emerging Markets and Corporate Bond
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Corporate Bond 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 Corporate Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emerging Markets Equity and Corporate Bond Portfolio, you can compare the effects of market volatilities on Emerging Markets and Corporate Bond 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 Corporate Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Corporate Bond.
Diversification Opportunities for Emerging Markets and Corporate Bond
0.06 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Emerging and Corporate is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Equity and Corporate Bond Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Corporate Bond Portfolio 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 Equity are associated (or correlated) with Corporate Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Corporate Bond Portfolio has no effect on the direction of Emerging Markets i.e., Emerging Markets and Corporate Bond go up and down completely randomly.
Pair Corralation between Emerging Markets and Corporate Bond
Assuming the 90 days horizon Emerging Markets Equity is expected to generate 2.15 times more return on investment than Corporate Bond. However, Emerging Markets is 2.15 times more volatile than Corporate Bond Portfolio. It trades about 0.04 of its potential returns per unit of risk. Corporate Bond Portfolio is currently generating about 0.06 per unit of risk. If you would invest 1,183 in Emerging Markets Equity on September 3, 2024 and sell it today you would earn a total of 194.00 from holding Emerging Markets Equity or generate 16.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerging Markets Equity vs. Corporate Bond Portfolio
Performance |
| Timeline |
| Emerging Markets Equity |
| Corporate Bond Portfolio |
Emerging Markets and Corporate Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and Corporate Bond
The main advantage of trading using opposite Emerging Markets and Corporate Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Corporate Bond 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 Corporate Bond will offset losses from the drop in Corporate Bond's long position.| Emerging Markets vs. Morningstar Global Income | Emerging Markets vs. Artisan Global Unconstrained | Emerging Markets vs. Franklin Mutual Global | Emerging Markets vs. Ab Global Real |
| Corporate Bond vs. International Equity Portfolio | Corporate Bond vs. Royce Special Equity | Corporate Bond vs. Growth Portfolio Class | Corporate Bond vs. Small Pany Growth |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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