Correlation Between Low-duration Bond and Value Equity

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

By analyzing existing cross correlation between Low Duration Bond Investor and Value Equity Institutional, you can compare the effects of market volatilities on Low-duration Bond and Value Equity 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 Low-duration Bond with a short position of Value Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Low-duration Bond and Value Equity.

Diversification Opportunities for Low-duration Bond and Value Equity

0.09

Correlation Coefficient

Low-duration Bond  Value Equity

Significant diversification

The 3 months correlation between Low-duration and Value is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Low Duration Bond Investor and Value Equity Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Equity Institu and Low-duration 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 Low Duration Bond Investor are associated (or correlated) with Value Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Equity Institu has no effect on the direction of Low-duration Bond i.e., Low-duration Bond and Value Equity go up and down completely randomly.

Pair Corralation between Low-duration Bond and Value Equity

Assuming the 90 days horizon Low-duration Bond is expected to generate 1.96 times less return on investment than Value Equity. But when comparing it to its historical volatility, Low Duration Bond Investor is 8.97 times less risky than Value Equity. It trades about 0.17 of its potential returns per unit of risk. Value Equity Institutional is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,875  in Value Equity Institutional on December 28, 2024 and sell it today you would earn a total of  31.00  from holding Value Equity Institutional or generate 1.65% return on investment over 90 days.

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

Low Duration Bond Investor  vs.  Value Equity Institutional

Low Duration Bond

Risk-Adjusted Performance

Good

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

Value Equity Institu

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Value Equity Institutional are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Value Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Low-duration Bond and Value Equity

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

The idea behind Low Duration Bond Investor and Value Equity Institutional 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.