Correlation Between Global Fixed and Corporate Bond

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

By analyzing existing cross correlation between Global Fixed Income and Corporate Bond Portfolio, you can compare the effects of market volatilities on Global Fixed and Corporate 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 Global Fixed with a short position of Corporate Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Fixed and Corporate Bond.

Diversification Opportunities for Global Fixed and Corporate Bond

0.82

Correlation Coefficient

Global Fixed  Corporate Bond

Very poor diversification

The 3 months correlation between Global and Corporate is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Global Fixed Income and Corporate Bond Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Corporate Bond Portfolio and Global Fixed 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 Global Fixed Income are associated (or correlated) with Corporate Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Corporate Bond Portfolio has no effect on the direction of Global Fixed i.e., Global Fixed and Corporate Bond go up and down completely randomly.

Pair Corralation between Global Fixed and Corporate Bond

Assuming the 90 days horizon Global Fixed Income is expected to generate 0.53 times more return on investment than Corporate Bond. However, Global Fixed Income is 1.9 times less risky than Corporate Bond. It trades about 0.17 of its potential returns per unit of risk. Corporate Bond Portfolio is currently generating about 0.08 per unit of risk. If you would invest  511.00  in Global Fixed Income on December 30, 2024 and sell it today you would earn a total of  9.00  from holding Global Fixed Income or generate 1.76% return on investment over 90 days.

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

Global Fixed Income  vs.  Corporate Bond Portfolio

Global Fixed Income

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Global Fixed Income are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Global Fixed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Corporate Bond Portfolio

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Corporate Bond Portfolio are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Corporate 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 Global Fixed and Corporate Bond

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

The idea behind Global Fixed Income and Corporate Bond Portfolio 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.