Correlation Between Emerging Markets and High Income
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and High Income 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 High Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emerging Markets Fund and High Income Fund, you can compare the effects of market volatilities on Emerging Markets and High Income 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 High Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and High Income.
Diversification Opportunities for Emerging Markets and High Income
0.41 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Emerging and High is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Fund and High Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Income Fund 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 Fund are associated (or correlated) with High Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Income Fund has no effect on the direction of Emerging Markets i.e., Emerging Markets and High Income go up and down completely randomly.
Pair Corralation between Emerging Markets and High Income
Assuming the 90 days horizon Emerging Markets Fund is expected to under-perform the High Income. In addition to that, Emerging Markets is 6.13 times more volatile than High Income Fund. It trades about -0.13 of its total potential returns per unit of risk. High Income Fund is currently generating about -0.02 per unit of volatility. If you would invest 691.00 in High Income Fund on August 25, 2024 and sell it today you would lose (1.00) from holding High Income Fund or give up 0.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerging Markets Fund vs. High Income Fund
Performance |
| Timeline |
| Emerging Markets |
| High Income Fund |
Emerging Markets and High Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and High Income
The main advantage of trading using opposite Emerging Markets and High Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, High Income 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 High Income will offset losses from the drop in High Income's long position.| Emerging Markets vs. Capital Growth Fund | Emerging Markets vs. High Income Fund | Emerging Markets vs. International Fund International | Emerging Markets vs. Growth Income Fund |
| High Income vs. Capital Growth Fund | High Income vs. Emerging Markets Fund | High Income vs. High Income Fund | High Income vs. International Fund International |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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