Correlation Between Low Duration and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Low Duration 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 Low Duration and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Low Duration Bond Institutional and Emerging Markets Equity, you can compare the effects of market volatilities on Low Duration 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 Low Duration with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Low Duration and Emerging Markets.
Diversification Opportunities for Low Duration and Emerging Markets
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Low and Emerging is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Low Duration Bond Institutiona 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 Low Duration 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 Low Duration Bond Institutional 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 Low Duration i.e., Low Duration and Emerging Markets go up and down completely randomly.
Pair Corralation between Low Duration and Emerging Markets
Assuming the 90 days horizon Low Duration is expected to generate 3.53 times less return on investment than Emerging Markets. But when comparing it to its historical volatility, Low Duration Bond Institutional is 7.9 times less risky than Emerging Markets. It trades about 0.35 of its potential returns per unit of risk. Emerging Markets Equity is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 1,068 in Emerging Markets Equity on June 8, 2025 and sell it today you would earn a total of 77.00 from holding Emerging Markets Equity or generate 7.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Low Duration Bond Institutiona vs. Emerging Markets Equity
Performance |
| Timeline |
| Low Duration Bond |
| Emerging Markets Equity |
Low Duration and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Low Duration and Emerging Markets
The main advantage of trading using opposite Low Duration and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Low Duration 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.| Low Duration vs. Growth Allocation Fund | Low Duration vs. Defensive Market Strategies | Low Duration vs. Defensive Market Strategies | Low Duration vs. Value Equity Institutional |
| Emerging Markets vs. Leader Short Term Bond | Emerging Markets vs. Western Asset Short | Emerging Markets vs. Franklin Emerging Market | Emerging Markets vs. Victory Diversified Stock |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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