Correlation Between Intermediate-term and Value Fund

Can any of the company-specific risk be diversified away by investing in both Intermediate-term and Value Fund 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 Value Fund 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 Value Fund Value, you can compare the effects of market volatilities on Intermediate-term and Value Fund 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 Value Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate-term and Value Fund.

Diversification Opportunities for Intermediate-term and Value Fund

0.68

Correlation Coefficient

Intermediate-term  Value Fund

Poor diversification

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

Pair Corralation between Intermediate-term and Value Fund

Assuming the 90 days horizon Intermediate Term Bond Fund is expected to generate 0.19 times more return on investment than Value Fund. However, Intermediate Term Bond Fund is 5.35 times less risky than Value Fund. It trades about -0.11 of its potential returns per unit of risk. Value Fund Value is currently generating about -0.12 per unit of risk. If you would invest  921.00  in Intermediate Term Bond Fund on October 10, 2024 and sell it today you would lose (20.00) from holding Intermediate Term Bond Fund or give up 2.17% 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.  Value Fund Value

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.

Value Fund Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Value Fund Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's essential indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Intermediate-term and Value Fund

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

The idea behind Intermediate Term Bond Fund and Value Fund Value 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.