Correlation Between Floating Rate and The Fixed

Can any of the company-specific risk be diversified away by investing in both Floating Rate and The Fixed 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 Floating Rate and The Fixed into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Floating Rate Fund and The Fixed Income, you can compare the effects of market volatilities on Floating Rate and The Fixed 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 Floating Rate with a short position of The Fixed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Floating Rate and The Fixed.

Diversification Opportunities for Floating Rate and The Fixed

-0.1

Correlation Coefficient

Floating Rate  The Fixed

Good diversification

The 3 months correlation between Floating and The is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Floating Rate Fund and The Fixed Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fixed Income and Floating Rate 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 Floating Rate Fund are associated (or correlated) with The Fixed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fixed Income has no effect on the direction of Floating Rate i.e., Floating Rate and The Fixed go up and down completely randomly.

Pair Corralation between Floating Rate and The Fixed

Assuming the 90 days horizon Floating Rate Fund is expected to generate 0.36 times more return on investment than The Fixed. However, Floating Rate Fund is 2.75 times less risky than The Fixed. It trades about 0.1 of its potential returns per unit of risk. The Fixed Income is currently generating about -0.04 per unit of risk. If you would invest  809.00  in Floating Rate Fund on December 2, 2024 and sell it today you would earn a total of  6.00  from holding Floating Rate Fund or generate 0.74% return on investment over 90 days.

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

Floating Rate Fund  vs.  The Fixed Income

Floating Rate

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Floating Rate Fund are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Floating Rate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fixed Income

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Floating Rate and The Fixed

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

The idea behind Floating Rate Fund and The Fixed Income 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.