Correlation Between Us Government and Multisector Bond

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

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

Diversification Opportunities for Us Government and Multisector Bond

0.3

Correlation Coefficient

Us Government  Multisector Bond

Weak diversification

The 3 months correlation between GVPIX and Multisector is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Us Government Plus 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 Us Government 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 Us Government Plus 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 Us Government i.e., Us Government and Multisector Bond go up and down completely randomly.

Pair Corralation between Us Government and Multisector Bond

Assuming the 90 days horizon Us Government Plus is expected to under-perform the Multisector Bond. In addition to that, Us Government is 3.01 times more volatile than Multisector Bond Sma. It trades about -0.41 of its total potential returns per unit of risk. Multisector Bond Sma is currently generating about -0.14 per unit of volatility. If you would invest  1,368  in Multisector Bond Sma on September 28, 2024 and sell it today you would lose (11.00) from holding Multisector Bond Sma or give up 0.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Us Government Plus  vs.  Multisector Bond Sma

Us Government Plus

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Us Government Plus has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Multisector Bond Sma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Multisector Bond Sma has generated negative risk-adjusted returns adding no value to fund investors. 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 Us Government and Multisector Bond

The main advantage of trading using opposite Us Government and Multisector Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Us Government 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 Us Government Plus 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.

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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.