Correlation Between Enhanced Fixed and Core Plus

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

By analyzing existing cross correlation between Enhanced Fixed Income and Core Plus Bond, you can compare the effects of market volatilities on Enhanced Fixed and Core Plus 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 Enhanced Fixed with a short position of Core Plus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Enhanced Fixed and Core Plus.

Diversification Opportunities for Enhanced Fixed and Core Plus

-0.09

Correlation Coefficient

Enhanced Fixed  Core Plus

Good diversification

The 3 months correlation between Enhanced and Core is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Enhanced Fixed Income and Core Plus Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Plus Bond and Enhanced Fixed 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 Enhanced Fixed Income are associated (or correlated) with Core Plus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Plus Bond has no effect on the direction of Enhanced Fixed i.e., Enhanced Fixed and Core Plus go up and down completely randomly.

Pair Corralation between Enhanced Fixed and Core Plus

Assuming the 90 days horizon Enhanced Fixed Income is expected to generate 1.03 times more return on investment than Core Plus. However, Enhanced Fixed is 1.03 times more volatile than Core Plus Bond. It trades about 0.03 of its potential returns per unit of risk. Core Plus Bond is currently generating about 0.01 per unit of risk. If you would invest  934.00  in Enhanced Fixed Income on October 10, 2024 and sell it today you would earn a total of  65.00  from holding Enhanced Fixed Income or generate 6.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.3%
Values	Daily Returns

Enhanced Fixed Income  vs.  Core Plus Bond

Enhanced Fixed Income

Risk-Adjusted Performance

0 of 100

Very Weak

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

Core Plus Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Enhanced Fixed and Core Plus

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

The idea behind Enhanced Fixed Income and Core Plus Bond 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.