Correlation Between Diversified Real and Core Plus

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

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

Diversification Opportunities for Diversified Real and Core Plus

0.53

Correlation Coefficient

Diversified Real  Core Plus

Very weak diversification

The 3 months correlation between Diversified and Core is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Real Asset and Core Plus Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Plus Bond and Diversified Real 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 Diversified Real Asset are associated (or correlated) with Core Plus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Plus Bond has no effect on the direction of Diversified Real i.e., Diversified Real and Core Plus go up and down completely randomly.

Pair Corralation between Diversified Real and Core Plus

Assuming the 90 days horizon Diversified Real is expected to generate 1.09 times less return on investment than Core Plus. In addition to that, Diversified Real is 1.79 times more volatile than Core Plus Bond. It trades about 0.08 of its total potential returns per unit of risk. Core Plus Bond is currently generating about 0.16 per unit of volatility. If you would invest  884.00  in Core Plus Bond on December 23, 2024 and sell it today you would earn a total of  25.00  from holding Core Plus Bond or generate 2.83% return on investment over 90 days.

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

Diversified Real Asset  vs.  Core Plus Bond

Diversified Real Asset

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Real Asset are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Diversified Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Core Plus Bond

Risk-Adjusted Performance

Good

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

Pair Trading with Diversified Real and Core Plus

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

The idea behind Diversified Real Asset and Core Plus Bond 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.