Correlation Between Short Duration and Blue Chip

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

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

Diversification Opportunities for Short Duration and Blue Chip

-0.42

Correlation Coefficient

Short Duration  Blue Chip

Very good diversification

The 3 months correlation between Short and Blue is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Short Duration Inflation and Blue Chip Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Chip Fund and Short Duration 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 Short Duration Inflation are associated (or correlated) with Blue Chip. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Chip Fund has no effect on the direction of Short Duration i.e., Short Duration and Blue Chip go up and down completely randomly.

Pair Corralation between Short Duration and Blue Chip

Assuming the 90 days horizon Short Duration Inflation is expected to generate 0.12 times more return on investment than Blue Chip. However, Short Duration Inflation is 8.35 times less risky than Blue Chip. It trades about 0.37 of its potential returns per unit of risk. Blue Chip Fund is currently generating about -0.07 per unit of risk. If you would invest  1,025  in Short Duration Inflation on December 20, 2024 and sell it today you would earn a total of  28.00  from holding Short Duration Inflation or generate 2.73% return on investment over 90 days.

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

Short Duration Inflation  vs.  Blue Chip Fund

Short Duration Inflation

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Short Duration Inflation are ranked lower than 29 (%) of all funds and portfolios of funds over the last 90 days. 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.

Blue Chip Fund

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Short Duration and Blue Chip

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

The idea behind Short Duration Inflation and Blue Chip 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.