Correlation Between New Economy and Short-term Bond
Can any of the company-specific risk be diversified away by investing in both New Economy and Short-term 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 New Economy and Short-term Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New Economy Fund and Short Term Bond Fund, you can compare the effects of market volatilities on New Economy and Short-term 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 New Economy with a short position of Short-term Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Economy and Short-term Bond.
Diversification Opportunities for New Economy and Short-term Bond
-0.74 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between New and Short-term is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding New Economy Fund and Short Term Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Bond and New Economy 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 New Economy Fund are associated (or correlated) with Short-term Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Bond has no effect on the direction of New Economy i.e., New Economy and Short-term Bond go up and down completely randomly.
Pair Corralation between New Economy and Short-term Bond
Assuming the 90 days horizon New Economy Fund is expected to under-perform the Short-term Bond. In addition to that, New Economy is 19.77 times more volatile than Short Term Bond Fund. It trades about -0.05 of its total potential returns per unit of risk. Short Term Bond Fund is currently generating about -0.09 per unit of volatility. If you would invest 957.00 in Short Term Bond Fund on January 12, 2025 and sell it today you would lose (3.00) from holding Short Term Bond Fund or give up 0.31% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
New Economy Fund vs. Short Term Bond Fund
Performance |
| Timeline |
| New Economy Fund |
| Short Term Bond |
New Economy and Short-term Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New Economy and Short-term Bond
The main advantage of trading using opposite New Economy and Short-term Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Economy position performs unexpectedly, Short-term 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 Short-term Bond will offset losses from the drop in Short-term Bond's long position.| New Economy vs. American Funds Growth | New Economy vs. American Funds Growth | New Economy vs. American Funds Balanced | New Economy vs. American Funds Income |
| Short-term Bond vs. Bond Fund Of | Short-term Bond vs. American High Income | Short-term Bond vs. Smallcap World Fund | Short-term Bond vs. Capital World Bond |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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