Correlation Between Value Equity and Low Duration

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

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

Diversification Opportunities for Value Equity and Low Duration

-0.13

Correlation Coefficient

Value Equity  Low Duration

Good diversification

The 3 months correlation between Value and Low is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Value Equity Institutional and Low Duration Bond Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Low Duration Bond and Value Equity 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 Value Equity Institutional are associated (or correlated) with Low Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Low Duration Bond has no effect on the direction of Value Equity i.e., Value Equity and Low Duration go up and down completely randomly.

Pair Corralation between Value Equity and Low Duration

Assuming the 90 days horizon Value Equity Institutional is expected to under-perform the Low Duration. In addition to that, Value Equity is 11.68 times more volatile than Low Duration Bond Investor. It trades about -0.05 of its total potential returns per unit of risk. Low Duration Bond Investor is currently generating about -0.14 per unit of volatility. If you would invest  1,298  in Low Duration Bond Investor on September 16, 2024 and sell it today you would lose (13.00) from holding Low Duration Bond Investor or give up 1.0% of portfolio value over 90 days.

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

Value Equity Institutional  vs.  Low Duration Bond Investor

Value Equity Institu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Value Equity Institutional has generated negative risk-adjusted returns adding no value to fund investors. 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.

Low Duration Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Value Equity and Low Duration

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

The idea behind Value Equity Institutional and Low Duration Bond Investor 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 Transaction History module to view history of all your transactions and understand their impact on performance.