Correlation Between Emerging Markets and Enhanced Fixed

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

Diversification Opportunities for Emerging Markets and Enhanced Fixed

0.33

Correlation Coefficient

Emerging Markets  Enhanced Fixed

Weak diversification

The 3 months correlation between Emerging and Enhanced is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Equity and Enhanced Fixed Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enhanced 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 Enhanced Fixed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enhanced Fixed Income has no effect on the direction of Emerging Markets i.e., Emerging Markets and Enhanced Fixed go up and down completely randomly.

Pair Corralation between Emerging Markets and Enhanced Fixed

Assuming the 90 days horizon Emerging Markets Equity is expected to under-perform the Enhanced Fixed. In addition to that, Emerging Markets is 1.74 times more volatile than Enhanced Fixed Income. It trades about -0.29 of its total potential returns per unit of risk. Enhanced Fixed Income is currently generating about -0.28 per unit of volatility. If you would invest  1,021  in Enhanced Fixed Income on October 9, 2024 and sell it today you would lose (23.00) from holding Enhanced Fixed Income or give up 2.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Emerging Markets Equity  vs.  Enhanced Fixed Income

Emerging Markets Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Emerging Markets Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Enhanced Fixed Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Enhanced Fixed Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Enhanced Fixed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Emerging Markets and Enhanced Fixed

The main advantage of trading using opposite Emerging Markets and Enhanced Fixed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Enhanced 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 Enhanced Fixed will offset losses from the drop in Enhanced Fixed's long position.

The idea behind Emerging Markets Equity and Enhanced Fixed Income 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.