Correlation Between Inflation Protected and Touchstone Large

Can any of the company-specific risk be diversified away by investing in both Inflation Protected and Touchstone Large 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 Inflation Protected and Touchstone Large into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Inflation Protected Bond Fund and Touchstone Large Cap, you can compare the effects of market volatilities on Inflation Protected and Touchstone Large 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 Inflation Protected with a short position of Touchstone Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inflation Protected and Touchstone Large.

Diversification Opportunities for Inflation Protected and Touchstone Large

0.72

Correlation Coefficient

Inflation Protected  Touchstone Large

Poor diversification

The 3 months correlation between Inflation and Touchstone is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Inflation Protected Bond Fund and Touchstone Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Touchstone Large Cap and Inflation Protected 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 Inflation Protected Bond Fund are associated (or correlated) with Touchstone Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Touchstone Large Cap has no effect on the direction of Inflation Protected i.e., Inflation Protected and Touchstone Large go up and down completely randomly.

Pair Corralation between Inflation Protected and Touchstone Large

Assuming the 90 days horizon Inflation Protected is expected to generate 2.25 times less return on investment than Touchstone Large. But when comparing it to its historical volatility, Inflation Protected Bond Fund is 1.41 times less risky than Touchstone Large. It trades about 0.1 of its potential returns per unit of risk. Touchstone Large Cap is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,909  in Touchstone Large Cap on October 23, 2024 and sell it today you would earn a total of  38.00  from holding Touchstone Large Cap or generate 1.99% return on investment over 90 days.

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

Inflation Protected Bond Fund  vs.  Touchstone Large Cap

Inflation Protected

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Inflation Protected Bond Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Inflation Protected is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Touchstone Large Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Inflation Protected and Touchstone Large

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

The idea behind Inflation Protected Bond Fund and Touchstone Large Cap 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.