Correlation Between Government Securities and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Government Securities 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 Government Securities and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Government Securities Fund and Emerging Markets Fund, you can compare the effects of market volatilities on Government Securities 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 Government Securities with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Government Securities and Emerging Markets.
Diversification Opportunities for Government Securities and Emerging Markets
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Government and Emerging is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Government Securities Fund and Emerging Markets Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets and Government Securities 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 Government Securities 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 has no effect on the direction of Government Securities i.e., Government Securities and Emerging Markets go up and down completely randomly.
Pair Corralation between Government Securities and Emerging Markets
Assuming the 90 days horizon Government Securities is expected to generate 1.83 times less return on investment than Emerging Markets. But when comparing it to its historical volatility, Government Securities Fund is 3.55 times less risky than Emerging Markets. It trades about 0.27 of its potential returns per unit of risk. Emerging Markets Fund is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 2,022 in Emerging Markets Fund on November 8, 2024 and sell it today you would earn a total of 57.00 from holding Emerging Markets Fund or generate 2.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
Government Securities Fund vs. Emerging Markets Fund
Performance |
| Timeline |
| Government Securities |
| Emerging Markets |
Government Securities and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Government Securities and Emerging Markets
The main advantage of trading using opposite Government Securities and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Government Securities 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.| Government Securities vs. Davis Government Bond | Government Securities vs. Hsbc Government Money | Government Securities vs. Us Government Securities | Government Securities vs. Virtus Seix Government |
| Emerging Markets vs. Fidelity Sai Convertible | Emerging Markets vs. Rationalpier 88 Convertible | Emerging Markets vs. Absolute Convertible Arbitrage | Emerging Markets vs. Columbia Convertible Securities |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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