Correlation Between Versatile Bond and Real Assets

Can any of the company-specific risk be diversified away by investing in both Versatile Bond and Real Assets 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 Real Assets 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 Real Assets Portfolio, you can compare the effects of market volatilities on Versatile Bond and Real Assets 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 Real Assets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Versatile Bond and Real Assets.

Diversification Opportunities for Versatile Bond and Real Assets

0.4

Correlation Coefficient

Versatile Bond  Real Assets

Very weak diversification

The 3 months correlation between Versatile and Real is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Versatile Bond Portfolio and Real Assets Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Assets Portfolio 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 Real Assets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Real Assets Portfolio has no effect on the direction of Versatile Bond i.e., Versatile Bond and Real Assets go up and down completely randomly.

Pair Corralation between Versatile Bond and Real Assets

Assuming the 90 days horizon Versatile Bond Portfolio is expected to generate 0.05 times more return on investment than Real Assets. However, Versatile Bond Portfolio is 19.59 times less risky than Real Assets. It trades about -0.04 of its potential returns per unit of risk. Real Assets Portfolio is currently generating about -0.32 per unit of risk. If you would invest  6,392  in Versatile Bond Portfolio on September 22, 2024 and sell it today you would lose (5.00) from holding Versatile Bond Portfolio or give up 0.08% of portfolio value over 90 days.

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

Versatile Bond Portfolio  vs.  Real Assets Portfolio

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.

Real Assets Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Real Assets Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Versatile Bond and Real Assets

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

The idea behind Versatile Bond Portfolio and Real Assets Portfolio 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.