Correlation Between Core Plus and Short Duration

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

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

Diversification Opportunities for Core Plus and Short Duration

0.92

Correlation Coefficient

Core Plus  Short Duration

Almost no diversification

The 3 months correlation between Core and Short is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Core Plus Fund and Short Duration Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Duration and Core Plus 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 Core Plus Fund are associated (or correlated) with Short Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Duration has no effect on the direction of Core Plus i.e., Core Plus and Short Duration go up and down completely randomly.

Pair Corralation between Core Plus and Short Duration

Assuming the 90 days horizon Core Plus Fund is expected to under-perform the Short Duration. In addition to that, Core Plus is 3.21 times more volatile than Short Duration Fund. It trades about -0.07 of its total potential returns per unit of risk. Short Duration Fund is currently generating about -0.02 per unit of volatility. If you would invest  978.00  in Short Duration Fund on September 23, 2024 and sell it today you would lose (1.00) from holding Short Duration Fund or give up 0.1% of portfolio value over 90 days.

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

Core Plus Fund  vs.  Short Duration Fund

Core Plus Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Core Plus Fund 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.

Short Duration

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Core Plus and Short Duration

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

The idea behind Core Plus Fund and Short Duration Fund 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.