Correlation Between Limited Duration and World Energy
Can any of the company-specific risk be diversified away by investing in both Limited Duration and World Energy 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 World Energy 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 World Energy Fund, you can compare the effects of market volatilities on Limited Duration and World Energy 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 World Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Limited Duration and World Energy.
Diversification Opportunities for Limited Duration and World Energy
-0.62 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Limited and World is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Limited Duration Fund and World Energy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Energy 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 World Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Energy has no effect on the direction of Limited Duration i.e., Limited Duration and World Energy go up and down completely randomly.
Pair Corralation between Limited Duration and World Energy
Assuming the 90 days horizon Limited Duration is expected to generate 17.3 times less return on investment than World Energy. But when comparing it to its historical volatility, Limited Duration Fund is 10.58 times less risky than World Energy. It trades about 0.22 of its potential returns per unit of risk. World Energy Fund is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest 1,391 in World Energy Fund on September 2, 2024 and sell it today you would earn a total of 134.00 from holding World Energy Fund or generate 9.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Limited Duration Fund vs. World Energy Fund
Performance |
| Timeline |
| Limited Duration |
| World Energy |
Limited Duration and World Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Limited Duration and World Energy
The main advantage of trading using opposite Limited Duration and World Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Limited Duration position performs unexpectedly, World Energy 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 World Energy will offset losses from the drop in World Energy's long position.| Limited Duration vs. Bond Fund Investor | Limited Duration vs. Strategic Enhanced Yield | Limited Duration vs. Cavanal Hill Hedged | Limited Duration vs. Limited Duration Fund |
| World Energy vs. Doubleline Emerging Markets | World Energy vs. Barings Emerging Markets | World Energy vs. Vanguard Developed Markets | World Energy vs. Artisan Emerging Markets |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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