Correlation Between Inflation-protected and Core Bond

Can any of the company-specific risk be diversified away by investing in both Inflation-protected and Core 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 Inflation-protected and Core Bond 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 Core Bond Series, you can compare the effects of market volatilities on Inflation-protected and Core 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 Inflation-protected with a short position of Core Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inflation-protected and Core Bond.

Diversification Opportunities for Inflation-protected and Core Bond

-0.35

Correlation Coefficient

Inflation-protected  Core Bond

Very good diversification

The 3 months correlation between Inflation-protected and Core is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Inflation Protected Bond Fund and Core Bond Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Bond Series 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 Core Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Bond Series has no effect on the direction of Inflation-protected i.e., Inflation-protected and Core Bond go up and down completely randomly.

Pair Corralation between Inflation-protected and Core Bond

Assuming the 90 days horizon Inflation Protected Bond Fund is expected to generate 0.23 times more return on investment than Core Bond. However, Inflation Protected Bond Fund is 4.42 times less risky than Core Bond. It trades about 0.16 of its potential returns per unit of risk. Core Bond Series is currently generating about -0.01 per unit of risk. If you would invest  994.00  in Inflation Protected Bond Fund on September 5, 2024 and sell it today you would earn a total of  40.00  from holding Inflation Protected Bond Fund or generate 4.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Inflation Protected Bond Fund  vs.  Core Bond Series

Inflation Protected

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Inflation Protected Bond Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Inflation-protected is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Core Bond Series

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Core Bond Series has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Core 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 Inflation-protected and Core Bond

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

The idea behind Inflation Protected Bond Fund and Core Bond Series 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.