Correlation Between Medium-duration Bond and Balanced Allocation

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

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

Diversification Opportunities for Medium-duration Bond and Balanced Allocation

0.63

Correlation Coefficient

Medium-duration Bond  Balanced Allocation

Poor diversification

The 3 months correlation between Medium-duration and Balanced is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Medium Duration Bond Instituti and Balanced Allocation Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balanced Allocation and Medium-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 Medium Duration Bond Institutional are associated (or correlated) with Balanced Allocation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balanced Allocation has no effect on the direction of Medium-duration Bond i.e., Medium-duration Bond and Balanced Allocation go up and down completely randomly.

Pair Corralation between Medium-duration Bond and Balanced Allocation

Assuming the 90 days horizon Medium Duration Bond Institutional is expected to generate 0.54 times more return on investment than Balanced Allocation. However, Medium Duration Bond Institutional is 1.84 times less risky than Balanced Allocation. It trades about -0.11 of its potential returns per unit of risk. Balanced Allocation Fund is currently generating about -0.16 per unit of risk. If you would invest  1,271  in Medium Duration Bond Institutional on October 11, 2024 and sell it today you would lose (25.00) from holding Medium Duration Bond Institutional or give up 1.97% of portfolio value over 90 days.

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

Medium Duration Bond Instituti  vs.  Balanced Allocation Fund

Medium Duration Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Balanced Allocation

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Medium-duration Bond and Balanced Allocation

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

The idea behind Medium Duration Bond Institutional and Balanced Allocation 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.