Correlation Between The National and Multisector Bond

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

By analyzing existing cross correlation between The National Tax Free and Multisector Bond Sma, you can compare the effects of market volatilities on The National and Multisector Bond 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 National with a short position of Multisector Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of The National and Multisector Bond.

Diversification Opportunities for The National and Multisector Bond

0.64

Correlation Coefficient

The National  Multisector Bond

Poor diversification

The 3 months correlation between The and Multisector is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding The National Tax Free and Multisector Bond Sma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Multisector Bond Sma and The National 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 National Tax Free are associated (or correlated) with Multisector Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Multisector Bond Sma has no effect on the direction of The National i.e., The National and Multisector Bond go up and down completely randomly.

Pair Corralation between The National and Multisector Bond

Assuming the 90 days horizon The National Tax Free is expected to under-perform the Multisector Bond. But the mutual fund apears to be less risky and, when comparing its historical volatility, The National Tax Free is 1.24 times less risky than Multisector Bond. The mutual fund trades about 0.0 of its potential returns per unit of risk. The Multisector Bond Sma is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,349  in Multisector Bond Sma on December 29, 2024 and sell it today you would earn a total of  21.00  from holding Multisector Bond Sma or generate 1.56% return on investment over 90 days.

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

The National Tax Free  vs.  Multisector Bond Sma

National Tax

Risk-Adjusted Performance

Very Weak

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

Multisector Bond Sma

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Multisector Bond Sma are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Multisector Bond 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 National and Multisector Bond

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

The idea behind The National Tax Free and Multisector Bond Sma 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.