Correlation Between Unconstrained Bond and Core Bond

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

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

Diversification Opportunities for Unconstrained Bond and Core Bond

0.94

Correlation Coefficient

Unconstrained Bond  Core Bond

Almost no diversification

The 3 months correlation between Unconstrained and Core is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Unconstrained Bond Series 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 Unconstrained Bond 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 Unconstrained Bond Series 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 Unconstrained Bond i.e., Unconstrained Bond and Core Bond go up and down completely randomly.

Pair Corralation between Unconstrained Bond and Core Bond

Assuming the 90 days horizon Unconstrained Bond Series is expected to generate 0.45 times more return on investment than Core Bond. However, Unconstrained Bond Series is 2.24 times less risky than Core Bond. It trades about -0.03 of its potential returns per unit of risk. Core Bond Series is currently generating about -0.1 per unit of risk. If you would invest  993.00  in Unconstrained Bond Series on September 12, 2024 and sell it today you would lose (3.00) from holding Unconstrained Bond Series or give up 0.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Unconstrained Bond Series  vs.  Core Bond Series

Unconstrained Bond Series

Risk-Adjusted Performance

0 of 100

Very Weak

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

The main advantage of trading using opposite Unconstrained Bond and Core Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Unconstrained Bond 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 Unconstrained Bond Series 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.