Correlation Between Financial Industries and Diversified Bond
Can any of the company-specific risk be diversified away by investing in both Financial Industries and Diversified 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 Financial Industries and Diversified Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial Industries Fund and Diversified Bond Fund, you can compare the effects of market volatilities on Financial Industries and Diversified 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 Financial Industries with a short position of Diversified Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Industries and Diversified Bond.
Diversification Opportunities for Financial Industries and Diversified Bond
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Financial and Diversified is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Financial Industries Fund and Diversified Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Bond and Financial Industries 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 Financial Industries Fund are associated (or correlated) with Diversified Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Bond has no effect on the direction of Financial Industries i.e., Financial Industries and Diversified Bond go up and down completely randomly.
Pair Corralation between Financial Industries and Diversified Bond
Assuming the 90 days horizon Financial Industries Fund is expected to generate 3.65 times more return on investment than Diversified Bond. However, Financial Industries is 3.65 times more volatile than Diversified Bond Fund. It trades about 0.3 of its potential returns per unit of risk. Diversified Bond Fund is currently generating about 0.04 per unit of risk. If you would invest 1,801 in Financial Industries Fund on November 3, 2024 and sell it today you would earn a total of 118.00 from holding Financial Industries Fund or generate 6.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Industries Fund vs. Diversified Bond Fund
Performance |
| Timeline |
| Financial Industries |
| Diversified Bond |
Financial Industries and Diversified Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Industries and Diversified Bond
The main advantage of trading using opposite Financial Industries and Diversified Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Industries position performs unexpectedly, Diversified 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 Diversified Bond will offset losses from the drop in Diversified Bond's long position.| Financial Industries vs. Nexpoint Real Estate | Financial Industries vs. Columbia Real Estate | Financial Industries vs. Redwood Real Estate | Financial Industries vs. Tiaa Cref Real Estate |
| Diversified Bond vs. Enhanced Fixed Income | Diversified Bond vs. Old Westbury Fixed | Diversified Bond vs. Dreyfusstandish Global Fixed | Diversified Bond vs. Smallcap World Fund |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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