Correlation Between California Bond and The Bond

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

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

Diversification Opportunities for California Bond and The Bond

0.58

Correlation Coefficient

California Bond  The Bond

Very weak diversification

The 3 months correlation between California and The is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding California Bond Fund and The Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bond Fund and California Bond 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 California Bond Fund 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 California Bond i.e., California Bond and The Bond go up and down completely randomly.

Pair Corralation between California Bond and The Bond

Assuming the 90 days horizon California Bond is expected to generate 8.83 times less return on investment than The Bond. But when comparing it to its historical volatility, California Bond Fund is 1.06 times less risky than The Bond. It trades about 0.02 of its potential returns per unit of risk. The Bond Fund is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,743  in The Bond Fund on December 23, 2024 and sell it today you would earn a total of  49.00  from holding The Bond Fund or generate 2.81% return on investment over 90 days.

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

California Bond Fund  vs.  The Bond Fund

California Bond

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in California Bond Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, California Bond 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

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Bond Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. 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 California Bond and The Bond

The main advantage of trading using opposite California Bond and The Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California Bond 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 California Bond Fund 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.

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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.