Correlation Between Emerging Markets and Government Securities
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Government Securities 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 Government Securities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emerging Markets Fund and Government Securities Fund, you can compare the effects of market volatilities on Emerging Markets and Government Securities 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 Government Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Government Securities.
Diversification Opportunities for Emerging Markets and Government Securities
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Emerging and Government is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Fund and Government Securities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Securities 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 Fund are associated (or correlated) with Government Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Securities has no effect on the direction of Emerging Markets i.e., Emerging Markets and Government Securities go up and down completely randomly.
Pair Corralation between Emerging Markets and Government Securities
Assuming the 90 days horizon Emerging Markets Fund is expected to generate 3.1 times more return on investment than Government Securities. However, Emerging Markets is 3.1 times more volatile than Government Securities Fund. It trades about 0.2 of its potential returns per unit of risk. Government Securities Fund is currently generating about 0.16 per unit of risk. If you would invest 2,218 in Emerging Markets Fund on May 28, 2025 and sell it today you would earn a total of 218.00 from holding Emerging Markets Fund or generate 9.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 98.41% |
| Values | Daily Returns |
Emerging Markets Fund vs. Government Securities Fund
Performance |
| Timeline |
| Emerging Markets |
| Government Securities |
Emerging Markets and Government Securities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and Government Securities
The main advantage of trading using opposite Emerging Markets and Government Securities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Government Securities 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 Government Securities will offset losses from the drop in Government Securities' long position.| Emerging Markets vs. Cref Inflation Linked Bond | Emerging Markets vs. Short Duration Inflation | Emerging Markets vs. Pimco Inflation Response | Emerging Markets vs. Vy Blackrock Inflation |
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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