Correlation Between Limited Duration and Bond Fund
Can any of the company-specific risk be diversified away by investing in both Limited Duration and Bond 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 Limited Duration and Bond Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Limited Duration Fund and Bond Fund Class, you can compare the effects of market volatilities on Limited Duration and Bond 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 Limited Duration with a short position of Bond Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Limited Duration and Bond Fund.
Diversification Opportunities for Limited Duration and Bond Fund
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Limited and Bond is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Limited Duration Fund and Bond Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bond Fund Class and Limited Duration 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 Limited Duration Fund are associated (or correlated) with Bond Fund. 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 Class has no effect on the direction of Limited Duration i.e., Limited Duration and Bond Fund go up and down completely randomly.
Pair Corralation between Limited Duration and Bond Fund
Assuming the 90 days horizon Limited Duration is expected to generate 1.11 times less return on investment than Bond Fund. But when comparing it to its historical volatility, Limited Duration Fund is 2.78 times less risky than Bond Fund. It trades about 0.2 of its potential returns per unit of risk. Bond Fund Class is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 845.00 in Bond Fund Class on August 31, 2024 and sell it today you would earn a total of 5.00 from holding Bond Fund Class or generate 0.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Limited Duration Fund vs. Bond Fund Class
Performance |
| Timeline |
| Limited Duration |
| Bond Fund Class |
Limited Duration and Bond Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Limited Duration and Bond Fund
The main advantage of trading using opposite Limited Duration and Bond Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Limited Duration position performs unexpectedly, Bond 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 Bond Fund will offset losses from the drop in Bond Fund's long position.| Limited Duration vs. Fidelity Series 1000 | Limited Duration vs. Dodge Cox Stock | Limited Duration vs. Tax Managed Large Cap | Limited Duration vs. Qs Large Cap |
| Bond Fund vs. Mesirow Financial High | Bond Fund vs. Artisan High Income | Bond Fund vs. Legg Mason Partners | Bond Fund vs. Virtus High Yield |
Check out your portfolio center.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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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