Correlation Between Defensive Market and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Defensive Market 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 Defensive Market and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Defensive Market Strategies and Emerging Markets Equity, you can compare the effects of market volatilities on Defensive Market 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 Defensive Market with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Defensive Market and Emerging Markets.
Diversification Opportunities for Defensive Market and Emerging Markets
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Defensive and Emerging is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Defensive Market Strategies and Emerging Markets Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Equity and Defensive Market 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 Defensive Market Strategies 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 Equity has no effect on the direction of Defensive Market i.e., Defensive Market and Emerging Markets go up and down completely randomly.
Pair Corralation between Defensive Market and Emerging Markets
Assuming the 90 days horizon Defensive Market is expected to generate 1.39 times less return on investment than Emerging Markets. But when comparing it to its historical volatility, Defensive Market Strategies is 2.7 times less risky than Emerging Markets. It trades about 0.43 of its potential returns per unit of risk. Emerging Markets Equity is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 1,063 in Emerging Markets Equity on April 14, 2025 and sell it today you would earn a total of 38.00 from holding Emerging Markets Equity or generate 3.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Defensive Market Strategies vs. Emerging Markets Equity
Performance |
| Timeline |
| Defensive Market Str |
| Emerging Markets Equity |
Defensive Market and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Defensive Market and Emerging Markets
The main advantage of trading using opposite Defensive Market and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Defensive Market 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.| Defensive Market vs. Siit High Yield | Defensive Market vs. Metropolitan West High | Defensive Market vs. Prudential High Yield | Defensive Market vs. Barings High Yield |
| Emerging Markets vs. Lord Abbett Health | Emerging Markets vs. Deutsche Health And | Emerging Markets vs. Highland Longshort Healthcare | Emerging Markets vs. Alger Health Sciences |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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