Correlation Between Parametric International and Ultra Short

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Can any of the company-specific risk be diversified away by investing in both Parametric International and Ultra Short 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 Parametric International and Ultra Short into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Parametric International Equity and Ultra Short Fixed Income, you can compare the effects of market volatilities on Parametric International and Ultra Short 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 Parametric International with a short position of Ultra Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Parametric International and Ultra Short.

Diversification Opportunities for Parametric International and Ultra Short

-0.59
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Parametric and Ultra is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Parametric International Equit and Ultra Short Fixed Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra Short Fixed and Parametric International 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 Parametric International Equity are associated (or correlated) with Ultra Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultra Short Fixed has no effect on the direction of Parametric International i.e., Parametric International and Ultra Short go up and down completely randomly.

Pair Corralation between Parametric International and Ultra Short

Assuming the 90 days horizon Parametric International Equity is expected to generate 22.14 times more return on investment than Ultra Short. However, Parametric International is 22.14 times more volatile than Ultra Short Fixed Income. It trades about 0.18 of its potential returns per unit of risk. Ultra Short Fixed Income is currently generating about 0.22 per unit of risk. If you would invest  1,454  in Parametric International Equity on September 13, 2024 and sell it today you would earn a total of  26.00  from holding Parametric International Equity or generate 1.79% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Parametric International Equit  vs.  Ultra Short Fixed Income

 Performance 
       Timeline  
Parametric International 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Parametric International Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Parametric International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Ultra Short Fixed 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Short Fixed Income are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Ultra Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Parametric International and Ultra Short Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Parametric International and Ultra Short

The main advantage of trading using opposite Parametric International and Ultra Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Parametric International position performs unexpectedly, Ultra Short 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 Ultra Short will offset losses from the drop in Ultra Short's long position.
The idea behind Parametric International Equity and Ultra Short Fixed Income 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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