Decoupling

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.


Filed Under:

comments powered by Disqus
Hot Definitions
  1. Oil Reserves

    An estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation's reserves.
  2. Joint Venture - JV

    A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it.
  3. Aggregate Risk

    The exposure of a bank, financial institution, or any type of major investor to foreign exchange contracts - both spot and forward - from a single counterparty or client. Aggregate risk in forex may also be defined as the total exposure of an entity to changes or fluctuations in currency rates.
  4. Organic Growth

    The growth rate that a company can achieve by increasing output and enhancing sales. This excludes any profits or growth acquired from takeovers, acquisitions or mergers. Takeovers, acquisitions and mergers do not bring about profits generated within the company, and are therefore not considered organic.
  5. Family Limited Partnership - FLP

    A type of partnership designed to centralize family business or investment accounts. FLPs pool together a family's assets into one single family-owned business partnership that family members own shares of. FLPs are frequently used as an estate tax minimization strategy, as shares in the FLP can be transferred between generations, at lower taxation rates than would be applied to the partnership's holdings.
  6. Yield Burning

    The illegal practice of underwriters marking up the prices on bonds for the purpose of reducing the yield on the bond. This practice, referred to as "burning the yield," is done after the bond is placed in escrow for an investor who is awaiting repayment.
Trading Center