Correlation Between CSIF I and CSIF III

Can any of the company-specific risk be diversified away by investing in both CSIF I and CSIF III 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 CSIF I and CSIF III into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CSIF I Bond and CSIF III Equity, you can compare the effects of market volatilities on CSIF I and CSIF III 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 CSIF I with a short position of CSIF III. Check out your portfolio center. Please also check ongoing floating volatility patterns of CSIF I and CSIF III.

Diversification Opportunities for CSIF I and CSIF III

0.64

Correlation Coefficient

CSIF I  CSIF III

Poor diversification

The 3 months correlation between CSIF and CSIF is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding CSIF I Bond and CSIF III Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSIF III Equity and CSIF I 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 CSIF I Bond are associated (or correlated) with CSIF III. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSIF III Equity has no effect on the direction of CSIF I i.e., CSIF I and CSIF III go up and down completely randomly.

Pair Corralation between CSIF I and CSIF III

Assuming the 90 days trading horizon CSIF I is expected to generate 2.13 times less return on investment than CSIF III. But when comparing it to its historical volatility, CSIF I Bond is 3.29 times less risky than CSIF III. It trades about 0.13 of its potential returns per unit of risk. CSIF III Equity is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  200,422  in CSIF III Equity on October 9, 2024 and sell it today you would earn a total of  8,891  from holding CSIF III Equity or generate 4.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

CSIF I Bond  vs.  CSIF III Equity

CSIF I Bond

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days CSIF I Bond has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong basic indicators, CSIF I is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

CSIF III Equity

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days CSIF III Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, CSIF III is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with CSIF I and CSIF III

The main advantage of trading using opposite CSIF I and CSIF III positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CSIF I position performs unexpectedly, CSIF III 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 CSIF III will offset losses from the drop in CSIF III's long position.

The idea behind CSIF I Bond and CSIF III Equity pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.