Correlation Between Global Fixed and Emerging Markets

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Can any of the company-specific risk be diversified away by investing in both Global 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 Global 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 Global Fixed Income and Emerging Markets Portfolio, you can compare the effects of market volatilities on Global 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 Global Fixed with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Fixed and Emerging Markets.

Diversification Opportunities for Global Fixed and Emerging Markets

GlobalEmergingDiversified AwayGlobalEmergingDiversified Away100%
-0.01
  Correlation Coefficient

Good diversification

The 3 months correlation between Global and Emerging is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Global Fixed Income and Emerging Markets Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Por and Global 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 Global 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 Por has no effect on the direction of Global Fixed i.e., Global Fixed and Emerging Markets go up and down completely randomly.

Pair Corralation between Global Fixed and Emerging Markets

Assuming the 90 days horizon Global Fixed Income is expected to generate 0.2 times more return on investment than Emerging Markets. However, Global Fixed Income is 4.96 times less risky than Emerging Markets. It trades about -0.1 of its potential returns per unit of risk. Emerging Markets Portfolio is currently generating about -0.12 per unit of risk. If you would invest  528.00  in Global Fixed Income on September 24, 2024 and sell it today you would lose (6.00) from holding Global Fixed Income or give up 1.14% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Global Fixed Income  vs.  Emerging Markets Portfolio

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -2024
JavaScript chart by amCharts 3.21.15DINDX MGEMX
       Timeline  
Global Fixed Income 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Global Fixed Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Global Fixed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec5.225.235.245.255.265.275.28
Emerging Markets Por 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Emerging Markets Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec21.52222.52323.5

Global Fixed and Emerging Markets Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-0.14-0.0796-0.0547-0.0285-0.0035660.02020.04490.06960.09430.26 2468101214
JavaScript chart by amCharts 3.21.15DINDX MGEMX
       Returns  

Pair Trading with Global Fixed and Emerging Markets

The main advantage of trading using opposite Global Fixed and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global 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.
The idea behind Global Fixed Income and Emerging Markets Portfolio pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Commodity Directory module to find actively traded commodities issued by global exchanges.

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