Correlation Between The Bond and Intermediate-term

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

By analyzing existing cross correlation between The Bond Fund and Intermediate Term Bond Fund, you can compare the effects of market volatilities on The Bond and Intermediate-term 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 The Bond with a short position of Intermediate-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of The Bond and Intermediate-term.

Diversification Opportunities for The Bond and Intermediate-term

0.86

Correlation Coefficient

The Bond  Intermediate-term

Very poor diversification

The 3 months correlation between The and Intermediate-term is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding The Bond Fund and Intermediate Term Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Term Bond and The Bond 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 The Bond Fund are associated (or correlated) with Intermediate-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Term Bond has no effect on the direction of The Bond i.e., The Bond and Intermediate-term go up and down completely randomly.

Pair Corralation between The Bond and Intermediate-term

Assuming the 90 days horizon The Bond Fund is expected to under-perform the Intermediate-term. In addition to that, The Bond is 1.07 times more volatile than Intermediate Term Bond Fund. It trades about -0.1 of its total potential returns per unit of risk. Intermediate Term Bond Fund is currently generating about -0.1 per unit of volatility. If you would invest  922.00  in Intermediate Term Bond Fund on October 9, 2024 and sell it today you would lose (17.00) from holding Intermediate Term Bond Fund or give up 1.84% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

The Bond Fund  vs.  Intermediate Term Bond Fund

Bond Fund

Risk-Adjusted Performance

0 of 100

Very Weak

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

Intermediate Term Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with The Bond and Intermediate-term

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

The idea behind The Bond Fund and Intermediate Term Bond 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.