Correlation Between Core Fixed and Ultra Short

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

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

Diversification Opportunities for Core Fixed and Ultra Short

0.85

Correlation Coefficient

Core Fixed  Ultra Short

Very poor diversification

The 3 months correlation between Core and Ultra is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Core Fixed Income and Ultra Short Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra Short Income and Core Fixed 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 Core Fixed Income are associated (or correlated) with Ultra Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultra Short Income has no effect on the direction of Core Fixed i.e., Core Fixed and Ultra Short go up and down completely randomly.

Pair Corralation between Core Fixed and Ultra Short

Assuming the 90 days horizon Core Fixed Income is expected to generate 3.45 times more return on investment than Ultra Short. However, Core Fixed is 3.45 times more volatile than Ultra Short Income. It trades about 0.15 of its potential returns per unit of risk. Ultra Short Income is currently generating about 0.23 per unit of risk. If you would invest  662.00  in Core Fixed Income on December 19, 2024 and sell it today you would earn a total of  17.00  from holding Core Fixed Income or generate 2.57% return on investment over 90 days.

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

Core Fixed Income  vs.  Ultra Short Income

Core Fixed Income

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Core Fixed Income are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Core Fixed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ultra Short Income

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Short Income are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Ultra Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Core Fixed and Ultra Short

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

The idea behind Core Fixed Income and Ultra Short Income 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.