Decoupling

AAA

DEFINITION of 'Decoupling'

The occurrence of returns on asset classes diverging from their expected or normal pattern of correlation. Decoupling takes place when two different asset classes that typically rise and fall together move in opposing directions, such as one increasing and the other decreasing. For example, stock and corporate bond returns generally move together. If the stock returns were to increase while the returns on bonds decreased, decoupling would have occurred. Another example can be seen with oil and natural gas prices; these typically rise and fall together. Decoupling occurs when oil moves in one direction and natural gas moves in the opposite direction.

INVESTOPEDIA EXPLAINS 'Decoupling'

Decoupling refers to a decrease in correlation. The concept that the world's emerging markets no longer need to depend on U.S. demand to drive economic growth, is an example of economic decoupling. Whereas, emerging markets at one point relied on the U.S. economy, many analysts now argue that some emerging markets, such as China, India and Brazil, have become sizable markets on their own, for goods and services. The argument for decoupling indicates that these economies would be able to withstand a faltering U.S. economy.

RELATED TERMS
  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Stock

    A type of security that signifies ownership in a corporation ...
  3. Correlation

    In the world of finance, a statistical measure of how two securities ...
  4. Forex - FX

    The market in which currencies are traded. The forex market is ...
  5. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with ...
  6. Recoupling

    When returns on asset classes revert back to their historical ...
Related Articles
  1. Options & Futures

    6 Asset Allocation Strategies That Work

    Your portfolio's asset mix is a key factor in whether it's profitable. Find out how to get this delicate balance right.
  2. Investing Basics

    5 Things To Know About Asset Allocation

    Overwhelmed by investment options? Learn how to create an asset allocation strategy that works for you.
  3. Forex Education

    Making Sense Of The EUR/CHF Relationship

    The strong correlation between EUR and CHF currency pairs is undeniable. Find out what it means for forex traders.
  4. Economics

    Cautionary Signs For International Investors

    "Going global" is a fashionable investing style, but investors should know the risks.
  5. Active Trading

    Intermarket Analysis: Pinpointing Reversals And Confirming Trends

    Learn how to confirm your analysis based on intermarket trends by watching global markets and particular stocks to pinpoint reversals.
  6. Forex Strategies

    The 10 Riskiest Investments

    Investors seeking high returns must also be prepared for high risk. Here are ten of the riskiest investments available.
  7. Options & Futures

    Feed Your Appetite For Chipotle Stock with Options

    Chipotle's stock may be out of the average person's price range, but options in-the-money call options offer a way to invest in the company.
  8. Options & Futures

    Trade Covered Calls On High Dividend Paying Stocks

    We explain the risks, rewards, timing, and profit and loss considerations for covered calls with dividend stocks.
  9. Investing

    Will North Korea Collapse Under Kim Jong-un?

    Will the North Korean leader, Kim Jong-un, be able to to keep North Korea afloat? The next few years are crucial to his regime.
  10. Mutual Funds & ETFs

    How To Apply Technical Indicators To Mutual Funds

    Mutual funds do not readily lend themselves to technical analysis, but investors can use common indicators to evaluate mutual funds as easily as stocks.

You May Also Like

Hot Definitions
  1. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  2. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  3. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  4. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  5. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  6. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
Trading Center