Correlation Between Versatile Bond and Floating Rate

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

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

Diversification Opportunities for Versatile Bond and Floating Rate

-0.07

Correlation Coefficient

Versatile Bond  Floating Rate

Good diversification

The 3 months correlation between Versatile and Floating is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Versatile Bond Portfolio and Floating Rate Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Floating Rate and Versatile 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 Versatile Bond Portfolio are associated (or correlated) with Floating Rate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Floating Rate has no effect on the direction of Versatile Bond i.e., Versatile Bond and Floating Rate go up and down completely randomly.

Pair Corralation between Versatile Bond and Floating Rate

Assuming the 90 days horizon Versatile Bond Portfolio is expected to under-perform the Floating Rate. But the mutual fund apears to be less risky and, when comparing its historical volatility, Versatile Bond Portfolio is 1.24 times less risky than Floating Rate. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Floating Rate Fund is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  801.00  in Floating Rate Fund on October 22, 2024 and sell it today you would earn a total of  16.00  from holding Floating Rate Fund or generate 2.0% return on investment over 90 days.

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

Versatile Bond Portfolio  vs.  Floating Rate Fund

Versatile Bond Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

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

Floating Rate

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Floating Rate Fund are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Floating Rate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Versatile Bond and Floating Rate

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

The idea behind Versatile Bond Portfolio and Floating Rate Fund 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.