Correlation Between Disciplined Value and Core Bond

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

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

Diversification Opportunities for Disciplined Value and Core Bond

-0.65

Correlation Coefficient

Disciplined Value  Core Bond

Excellent diversification

The 3 months correlation between Disciplined and Core is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Disciplined Value 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 Disciplined Value 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 Disciplined Value 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 Disciplined Value i.e., Disciplined Value and Core Bond go up and down completely randomly.

Pair Corralation between Disciplined Value and Core Bond

Assuming the 90 days horizon Disciplined Value Series is expected to generate 1.89 times more return on investment than Core Bond. However, Disciplined Value is 1.89 times more volatile than Core Bond Series. It trades about 0.06 of its potential returns per unit of risk. Core Bond Series is currently generating about 0.04 per unit of risk. If you would invest  744.00  in Disciplined Value Series on September 12, 2024 and sell it today you would earn a total of  176.00  from holding Disciplined Value Series or generate 23.66% return on investment over 90 days.

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

Disciplined Value Series  vs.  Core Bond Series

Disciplined Value Series

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Disciplined Value Series are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Disciplined Value 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 Disciplined Value and Core Bond

The main advantage of trading using opposite Disciplined Value and Core Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disciplined Value 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 Disciplined Value 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.