Correlation Between Short Duration and Inflation-adjusted
Can any of the company-specific risk be diversified away by investing in both Short Duration and Inflation-adjusted 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 Short Duration and Inflation-adjusted into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Short Duration Inflation and Inflation Adjusted Bond Fund, you can compare the effects of market volatilities on Short Duration and Inflation-adjusted 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 Short Duration with a short position of Inflation-adjusted. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Duration and Inflation-adjusted.
Diversification Opportunities for Short Duration and Inflation-adjusted
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Short and Inflation-adjusted is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Short Duration Inflation and Inflation Adjusted Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inflation Adjusted Bond and Short 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 Short Duration Inflation are associated (or correlated) with Inflation-adjusted. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inflation Adjusted Bond has no effect on the direction of Short Duration i.e., Short Duration and Inflation-adjusted go up and down completely randomly.
Pair Corralation between Short Duration and Inflation-adjusted
Assuming the 90 days horizon Short Duration is expected to generate 1.53 times less return on investment than Inflation-adjusted. But when comparing it to its historical volatility, Short Duration Inflation is 1.8 times less risky than Inflation-adjusted. It trades about 0.36 of its potential returns per unit of risk. Inflation Adjusted Bond Fund is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest 1,033 in Inflation Adjusted Bond Fund on November 5, 2024 and sell it today you would earn a total of 14.00 from holding Inflation Adjusted Bond Fund or generate 1.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Short Duration Inflation vs. Inflation Adjusted Bond Fund
Performance |
| Timeline |
| Short Duration Inflation |
| Inflation Adjusted Bond |
Short Duration and Inflation-adjusted Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short Duration and Inflation-adjusted
The main advantage of trading using opposite Short Duration and Inflation-adjusted positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short Duration position performs unexpectedly, Inflation-adjusted 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 Inflation-adjusted will offset losses from the drop in Inflation-adjusted's long position.| Short Duration vs. Inflation Adjusted Bond Fund | Short Duration vs. Diversified Bond Fund | Short Duration vs. Short Duration Fund | Short Duration vs. Core Plus Fund |
| Inflation-adjusted vs. Great West Moderately Aggressive | Inflation-adjusted vs. American Funds Retirement | Inflation-adjusted vs. College Retirement Equities | Inflation-adjusted vs. Sierra E Retirement |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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