Correlation Between International Fixed and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both International Fixed 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 International Fixed and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Fixed Income and Emerging Markets Equity, you can compare the effects of market volatilities on International Fixed 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 International Fixed with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Fixed and Emerging Markets.
Diversification Opportunities for International Fixed and Emerging Markets
0.01 | Correlation Coefficient |
Significant diversification
The 3 months correlation between INTERNATIONAL and Emerging is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding International Fixed Income and Emerging Markets Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Equity and International Fixed 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 International Fixed Income 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 Equity has no effect on the direction of International Fixed i.e., International Fixed and Emerging Markets go up and down completely randomly.
Pair Corralation between International Fixed and Emerging Markets
Assuming the 90 days horizon International Fixed Income is expected to generate 0.22 times more return on investment than Emerging Markets. However, International Fixed Income is 4.47 times less risky than Emerging Markets. It trades about 0.43 of its potential returns per unit of risk. Emerging Markets Equity is currently generating about -0.16 per unit of risk. If you would invest 680.00 in International Fixed Income on September 1, 2024 and sell it today you would earn a total of 12.00 from holding International Fixed Income or generate 1.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Fixed Income vs. Emerging Markets Equity
Performance |
| Timeline |
| International Fixed |
| Emerging Markets Equity |
International Fixed and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Fixed and Emerging Markets
The main advantage of trading using opposite International Fixed and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Fixed 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.| International Fixed vs. Emerging Markets Equity | International Fixed vs. Global Fixed Income | International Fixed vs. Global Fixed Income | International Fixed vs. Global Fixed Income |
| Emerging Markets vs. International Equity Portfolio | Emerging Markets vs. Municipal Bond Fund | Emerging Markets vs. Global Advantage Portfolio | Emerging Markets vs. Advantage Portfolio Class |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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