Correlation Between Intermediate-term and Global Managed

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

By analyzing existing cross correlation between Intermediate Term Bond Fund and Global Managed Volatility, you can compare the effects of market volatilities on Intermediate-term and Global Managed 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 Intermediate-term with a short position of Global Managed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate-term and Global Managed.

Diversification Opportunities for Intermediate-term and Global Managed

0.68

Correlation Coefficient

Intermediate-term  Global Managed

Poor diversification

The 3 months correlation between Intermediate-term and Global is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Term Bond Fund and Global Managed Volatility in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Managed Volatility and Intermediate-term 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 Intermediate Term Bond Fund are associated (or correlated) with Global Managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Managed Volatility has no effect on the direction of Intermediate-term i.e., Intermediate-term and Global Managed go up and down completely randomly.

Pair Corralation between Intermediate-term and Global Managed

Assuming the 90 days horizon Intermediate Term Bond Fund is expected to generate 0.24 times more return on investment than Global Managed. However, Intermediate Term Bond Fund is 4.22 times less risky than Global Managed. It trades about -0.52 of its potential returns per unit of risk. Global Managed Volatility is currently generating about -0.29 per unit of risk. If you would invest  924.00  in Intermediate Term Bond Fund on October 9, 2024 and sell it today you would lose (24.00) from holding Intermediate Term Bond Fund or give up 2.6% of portfolio value over 90 days.

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

Intermediate Term Bond Fund  vs.  Global Managed Volatility

Intermediate Term Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Global Managed Volatility

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Intermediate-term and Global Managed

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

The idea behind Intermediate Term Bond Fund and Global Managed Volatility 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.