Correlation Between Short Duration and Core Plus

Can any of the company-specific risk be diversified away by investing in both Short Duration 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 Short Duration and Core Plus 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 Core Plus Fund, you can compare the effects of market volatilities on Short Duration 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 Short Duration with a short position of Core Plus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Duration and Core Plus.

Diversification Opportunities for Short Duration and Core Plus

0.66

Correlation Coefficient

Short Duration  Core Plus

Poor diversification

The 3 months correlation between Short and Core is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Short Duration Inflation and Core Plus Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Plus 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 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 Fund has no effect on the direction of Short Duration i.e., Short Duration and Core Plus go up and down completely randomly.

Pair Corralation between Short Duration and Core Plus

Assuming the 90 days horizon Short Duration is expected to generate 1.27 times less return on investment than Core Plus. But when comparing it to its historical volatility, Short Duration Inflation is 1.94 times less risky than Core Plus. It trades about 0.05 of its potential returns per unit of risk. Core Plus Fund is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  852.00  in Core Plus Fund on September 23, 2024 and sell it today you would earn a total of  57.00  from holding Core Plus Fund or generate 6.69% return on investment over 90 days.

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

Short Duration Inflation  vs.  Core Plus Fund

Short Duration Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

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

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.

Pair Trading with Short Duration and Core Plus

The main advantage of trading using opposite Short Duration and Core Plus positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short Duration 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 Short Duration Inflation and Core Plus 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.