Correlation Between Fundamental Indexplus and Investment Grade

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

By analyzing existing cross correlation between Fundamental Indexplus Tr and Investment Grade Porate, you can compare the effects of market volatilities on Fundamental Indexplus and Investment Grade 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 Fundamental Indexplus with a short position of Investment Grade. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fundamental Indexplus and Investment Grade.

Diversification Opportunities for Fundamental Indexplus and Investment Grade

-0.18

Correlation Coefficient

Fundamental Indexplus  Investment Grade

Good diversification

The 3 months correlation between Fundamental and Investment is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Fundamental Indexplus Tr and Investment Grade Porate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investment Grade Porate and Fundamental Indexplus 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 Fundamental Indexplus Tr are associated (or correlated) with Investment Grade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investment Grade Porate has no effect on the direction of Fundamental Indexplus i.e., Fundamental Indexplus and Investment Grade go up and down completely randomly.

Pair Corralation between Fundamental Indexplus and Investment Grade

Assuming the 90 days horizon Fundamental Indexplus Tr is expected to generate 2.42 times more return on investment than Investment Grade. However, Fundamental Indexplus is 2.42 times more volatile than Investment Grade Porate. It trades about 0.05 of its potential returns per unit of risk. Investment Grade Porate is currently generating about -0.14 per unit of risk. If you would invest  1,756  in Fundamental Indexplus Tr on September 17, 2024 and sell it today you would earn a total of  44.00  from holding Fundamental Indexplus Tr or generate 2.51% return on investment over 90 days.

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

Fundamental Indexplus Tr  vs.  Investment Grade Porate

Fundamental Indexplus

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fundamental Indexplus Tr are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Fundamental Indexplus is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Investment Grade Porate

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Fundamental Indexplus and Investment Grade

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

The idea behind Fundamental Indexplus Tr and Investment Grade Porate 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.