Decoupling

What is 'Decoupling'

Decoupling is 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.

BREAKING DOWN '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. Recoupling

    When returns on asset classes revert back to their historical ...
  2. Intermarket Analysis

    The analysis of more than one related asset class or financial ...
  3. Asset Class

    A group of securities that exhibit similar characteristics, behave ...
  4. Multiple Capital Structure

    The classification of a company's stock and bond offerings into ...
  5. Share Class

    A designation applied to a specified type of security such as ...
  6. Inverse Correlation

    A contrary relationship between two variables such that they ...
Related Articles
  1. Markets

    Four Factors Supporting the Global Economy in 2016

    The global economy enters 2016 on a promising note, with the growth pace forecast to be the fastest since 2011, thanks to a combination of four potent factors.
  2. Markets

    Understanding the Oil & Gas Price Correlation

    Learn how the correlation between the commodity prices for natural gas and oil changed from 2004 to 2015 due to increased natural gas production.
  3. Markets

    How the Equity Market Became Sensitive to Oil (COP, WFC)

    Discover the reason equities markets became closely correlated with oil prices in the first quarter of 2016, and why the correlation is likely to decouple.
  4. Markets

    Do Oil and Natural Gas Prices Rise And Fall Together?

    Do the prices of crude oil and natural gas affect each other? Investopedia explores price patterns and provides analysis.
  5. Managing Wealth

    4 Reasons Why Market Correlation Matters

    Learn about how correlation can be used to measure how broader markets move in relation to each other. See how correlation is used to manage risk.
  6. Managing Wealth

    2016's Most Promising Asset Classes

    Find out which asset classes are considered to be the most promising for generating portfolio returns and reducing volatility in 2016.
  7. Trading

    Correlation

    In the world of finance, correlation is a statistical measure of how two securities move in relation to each other.
  8. Investing

    Pairs Trading: Correlation

    Correlation is a term from linear regression analysis that describes the strength of the relationship between a dependent variable and an independent variable. Central to pairs trading is the ...
  9. Managing Wealth

    Diversification Beyond Stocks

    If you think holding several stocks means you're diversified, think again - there's much more to be done to reduce portfolio risk.
  10. Markets

    What is an Asset Class?

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations.
RELATED FAQS
  1. Why are stocks and oil so correlated right now?

    Learn whether the stock market and oil prices will continue their highly correlated price relationship or decouple again ... Read Answer >>
  2. How do fund managers use correlation to create portfolio diversity?

    Read about how contemporary investment fund managers use the concept of correlation to add diversification among assets in ... Read Answer >>
  3. What is the difference between positive correlation and inverse correlation?

    Learn the difference between a positive correlation and a negative, or inverse, correlation and the way they apply to the ... Read Answer >>
  4. Does a negative correlation between two stocks mean anything?

    Learn what the concept of negative correlation means, understand how it is generally calculated and see how it is used in ... Read Answer >>
  5. How do I find positive correlation in the stock market?

    Learn how positive correlation is found in the stock market, how correlation is calculated and how positive correlation is ... Read Answer >>
  6. How does the risk of investing in the oil and gas sector compare to the broader market?

    Learn how the oil and gas sector has risk both with the broader market and the price of oil and gas, and understand how correlation ... Read Answer >>
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center