Correlation Between Short Duration and Strategic Bond

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

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

Diversification Opportunities for Short Duration and Strategic Bond

0.98

Correlation Coefficient

Short Duration  Strategic Bond

Almost no diversification

The 3 months correlation between Short and Strategic is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Short Duration Bond and Strategic Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Bond and Short Duration 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 Short Duration Bond 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 Short Duration i.e., Short Duration and Strategic Bond go up and down completely randomly.

Pair Corralation between Short Duration and Strategic Bond

Assuming the 90 days horizon Short Duration is expected to generate 1.68 times less return on investment than Strategic Bond. But when comparing it to its historical volatility, Short Duration Bond is 3.07 times less risky than Strategic Bond. It trades about 0.26 of its potential returns per unit of risk. Strategic Bond Fund is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  895.00  in Strategic Bond Fund on December 30, 2024 and sell it today you would earn a total of  23.00  from holding Strategic Bond Fund or generate 2.57% return on investment over 90 days.

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

Short Duration Bond  vs.  Strategic Bond Fund

Short Duration Bond

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Short Duration Bond are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Short Duration 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

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Strategic Bond Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic 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 Short Duration and Strategic Bond

The main advantage of trading using opposite Short Duration and Strategic Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short Duration 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 Short Duration Bond 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.

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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.