Correlation Between FlexShares Credit and FlexShares Disciplined

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

By analyzing existing cross correlation between FlexShares Credit Scored Corporate and FlexShares Disciplined Duration, you can compare the effects of market volatilities on FlexShares Credit and FlexShares Disciplined 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 FlexShares Credit with a short position of FlexShares Disciplined. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares Credit and FlexShares Disciplined.

Diversification Opportunities for FlexShares Credit and FlexShares Disciplined

0.96

Correlation Coefficient

FlexShares Credit  FlexShares Disciplined

Almost no diversification

The 3 months correlation between FlexShares and FlexShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares Credit Scored Corpo and FlexShares Disciplined Duratio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Disciplined and FlexShares Credit 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 FlexShares Credit Scored Corporate are associated (or correlated) with FlexShares Disciplined. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Disciplined has no effect on the direction of FlexShares Credit i.e., FlexShares Credit and FlexShares Disciplined go up and down completely randomly.

Pair Corralation between FlexShares Credit and FlexShares Disciplined

Given the investment horizon of 90 days FlexShares Credit is expected to generate 1.11 times less return on investment than FlexShares Disciplined. But when comparing it to its historical volatility, FlexShares Credit Scored Corporate is 1.39 times less risky than FlexShares Disciplined. It trades about 0.21 of its potential returns per unit of risk. FlexShares Disciplined Duration is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,025  in FlexShares Disciplined Duration on November 19, 2024 and sell it today you would earn a total of  17.00  from holding FlexShares Disciplined Duration or generate 0.84% return on investment over 90 days.

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

FlexShares Credit Scored Corpo  vs.  FlexShares Disciplined Duratio

FlexShares Credit

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Credit Scored Corporate are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, FlexShares Credit is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

FlexShares Disciplined

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Disciplined Duration are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, FlexShares Disciplined is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with FlexShares Credit and FlexShares Disciplined

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

The idea behind FlexShares Credit Scored Corporate and FlexShares Disciplined Duration 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.