Correlation Between Emerging Markets and Core Fixed
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Core Fixed 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 Core Fixed 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 Core Fixed Income, you can compare the effects of market volatilities on Emerging Markets and Core Fixed 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 Core Fixed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Core Fixed.
Diversification Opportunities for Emerging Markets and Core Fixed
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Emerging and Core is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Equity and Core Fixed Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Fixed Income 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 Core Fixed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Fixed Income has no effect on the direction of Emerging Markets i.e., Emerging Markets and Core Fixed go up and down completely randomly.
Pair Corralation between Emerging Markets and Core Fixed
Assuming the 90 days horizon Emerging Markets Equity is expected to generate 2.45 times more return on investment than Core Fixed. However, Emerging Markets is 2.45 times more volatile than Core Fixed Income. It trades about 0.05 of its potential returns per unit of risk. Core Fixed Income is currently generating about 0.04 per unit of risk. If you would invest 1,254 in Emerging Markets Equity on April 26, 2025 and sell it today you would earn a total of 325.00 from holding Emerging Markets Equity or generate 25.92% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Emerging Markets Equity vs. Core Fixed Income
Performance |
Timeline |
Emerging Markets Equity |
Core Fixed Income |
Emerging Markets and Core Fixed Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Emerging Markets and Core Fixed
The main advantage of trading using opposite Emerging Markets and Core Fixed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Core Fixed 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 Core Fixed will offset losses from the drop in Core Fixed's long position.Emerging Markets vs. Ep Emerging Markets | Emerging Markets vs. Siit Emerging Markets | Emerging Markets vs. Nasdaq 100 2x Strategy | Emerging Markets vs. Franklin Emerging Market |
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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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