Correlation Between International Developed and Strategic Bond

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

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

Diversification Opportunities for International Developed and Strategic Bond

0.58

Correlation Coefficient

International Developed  Strategic Bond

Very weak diversification

The 3 months correlation between International and Strategic is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding International Developed Market and Strategic Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Bond and International Developed 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 International Developed Markets are associated (or correlated) with Strategic Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategic Bond has no effect on the direction of International Developed i.e., International Developed and Strategic Bond go up and down completely randomly.

Pair Corralation between International Developed and Strategic Bond

Assuming the 90 days horizon International Developed Markets is expected to generate 2.33 times more return on investment than Strategic Bond. However, International Developed is 2.33 times more volatile than Strategic Bond Fund. It trades about 0.11 of its potential returns per unit of risk. Strategic Bond Fund is currently generating about 0.03 per unit of risk. If you would invest  4,249  in International Developed Markets on November 28, 2024 and sell it today you would earn a total of  195.00  from holding International Developed Markets or generate 4.59% return on investment over 90 days.

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

International Developed Market  vs.  Strategic Bond Fund

International Developed

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Developed Markets are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, International Developed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Strategic Bond

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Strategic Bond Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Strategic Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with International Developed and Strategic Bond

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

The idea behind International Developed Markets and Strategic Bond 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.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.