Correlation Between Intermediate Term and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Intermediate Term 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 Intermediate Term and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Intermediate Term Tax Free Bond and Emerging Markets Debt, you can compare the effects of market volatilities on Intermediate Term 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 Intermediate Term with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate Term and Emerging Markets.
Diversification Opportunities for Intermediate Term and Emerging Markets
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Intermediate and Emerging is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Term Tax Free Bon and Emerging Markets Debt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Debt and Intermediate Term 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 Intermediate Term Tax Free Bond 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 Debt has no effect on the direction of Intermediate Term i.e., Intermediate Term and Emerging Markets go up and down completely randomly.
Pair Corralation between Intermediate Term and Emerging Markets
Assuming the 90 days horizon Intermediate Term is expected to generate 1.78 times less return on investment than Emerging Markets. But when comparing it to its historical volatility, Intermediate Term Tax Free Bond is 1.77 times less risky than Emerging Markets. It trades about 0.05 of its potential returns per unit of risk. Emerging Markets Debt is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 858.00 in Emerging Markets Debt on September 12, 2024 and sell it today you would earn a total of 33.00 from holding Emerging Markets Debt or generate 3.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Intermediate Term Tax Free Bon vs. Emerging Markets Debt
Performance |
| Timeline |
| Intermediate Term Tax |
| Emerging Markets Debt |
Intermediate Term and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Intermediate Term and Emerging Markets
The main advantage of trading using opposite Intermediate Term and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Intermediate Term 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.| Intermediate Term vs. Strategic Advisers Income | Intermediate Term vs. Gmo High Yield | Intermediate Term vs. Fidelity Capital Income | Intermediate Term vs. Siit High Yield |
| Emerging Markets vs. Emerging Markets Fund | Emerging Markets vs. Emerging Markets Fund | Emerging Markets vs. Emerging Markets Fund | Emerging Markets vs. Emerging Markets Fund |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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