Correlation Between Moderate Balanced and The Bond

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

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

Diversification Opportunities for Moderate Balanced and The Bond

0.43

Correlation Coefficient

Moderate Balanced  The Bond

Very weak diversification

The 3 months correlation between Moderate and The is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Moderate Balanced Allocation and The Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bond Fund and Moderate Balanced 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 Moderate Balanced Allocation are associated (or correlated) with The Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bond Fund has no effect on the direction of Moderate Balanced i.e., Moderate Balanced and The Bond go up and down completely randomly.

Pair Corralation between Moderate Balanced and The Bond

Assuming the 90 days horizon Moderate Balanced Allocation is expected to generate 1.84 times more return on investment than The Bond. However, Moderate Balanced is 1.84 times more volatile than The Bond Fund. It trades about 0.05 of its potential returns per unit of risk. The Bond Fund is currently generating about 0.06 per unit of risk. If you would invest  1,124  in Moderate Balanced Allocation on October 9, 2024 and sell it today you would earn a total of  58.00  from holding Moderate Balanced Allocation or generate 5.16% return on investment over 90 days.

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

Moderate Balanced Allocation  vs.  The Bond Fund

Moderate Balanced

Risk-Adjusted Performance

0 of 100

Very Weak

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

Bond Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, The 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 Moderate Balanced and The Bond

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

The idea behind Moderate Balanced Allocation and The 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.