Correlation Between Foreign Bond and Cutler Equity

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

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

Diversification Opportunities for Foreign Bond and Cutler Equity

0.38

Correlation Coefficient

Foreign Bond  Cutler Equity

Weak diversification

The 3 months correlation between Foreign and Cutler is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Foreign Bond Fund and Cutler Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cutler Equity and Foreign 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 Foreign Bond Fund are associated (or correlated) with Cutler Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cutler Equity has no effect on the direction of Foreign Bond i.e., Foreign Bond and Cutler Equity go up and down completely randomly.

Pair Corralation between Foreign Bond and Cutler Equity

Assuming the 90 days horizon Foreign Bond Fund is expected to generate 0.53 times more return on investment than Cutler Equity. However, Foreign Bond Fund is 1.9 times less risky than Cutler Equity. It trades about 0.14 of its potential returns per unit of risk. Cutler Equity is currently generating about 0.04 per unit of risk. If you would invest  730.00  in Foreign Bond Fund on December 29, 2024 and sell it today you would earn a total of  24.00  from holding Foreign Bond Fund or generate 3.29% return on investment over 90 days.

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

Foreign Bond Fund  vs.  Cutler Equity

Foreign Bond

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Foreign Bond Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Foreign Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Cutler Equity

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cutler Equity are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Cutler Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Foreign Bond and Cutler Equity

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

The idea behind Foreign Bond Fund and Cutler Equity 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.