Correlation Between Conservative Allocation and Medium Duration

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

Diversification Opportunities for Conservative Allocation and Medium Duration

ConservativeMediumDiversified AwayConservativeMediumDiversified Away100%
0.88
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Conservative and Medium is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Conservative Allocation Fund and Medium Duration Bond Instituti in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medium Duration Bond and Conservative Allocation 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 Conservative Allocation Fund are associated (or correlated) with Medium Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medium Duration Bond has no effect on the direction of Conservative Allocation i.e., Conservative Allocation and Medium Duration go up and down completely randomly.

Pair Corralation between Conservative Allocation and Medium Duration

Assuming the 90 days horizon Conservative Allocation is expected to generate 1.33 times less return on investment than Medium Duration. But when comparing it to its historical volatility, Conservative Allocation Fund is 1.45 times less risky than Medium Duration. It trades about 0.16 of its potential returns per unit of risk. Medium Duration Bond Institutional is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,255  in Medium Duration Bond Institutional on November 27, 2024 and sell it today you would earn a total of  10.00  from holding Medium Duration Bond Institutional or generate 0.8% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy95.24%
ValuesDaily Returns

Conservative Allocation Fund  vs.  Medium Duration Bond Instituti

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -1.0-0.50.00.51.01.52.0
JavaScript chart by amCharts 3.21.15GFIZX GMDYX
       Timeline  
Conservative Allocation 

Risk-Adjusted Performance

Weak

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Conservative Allocation Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Conservative Allocation is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb10.951111.0511.111.1511.2
Medium Duration Bond 

Risk-Adjusted Performance

Weak

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Medium Duration Bond Institutional are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Medium Duration is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb12.312.3512.412.4512.512.5512.612.6512.7

Conservative Allocation and Medium Duration Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-0.7-0.47-0.24-0.0746-0.0032410.06160.210.440.670.9 1234567
JavaScript chart by amCharts 3.21.15GFIZX GMDYX
       Returns  

Pair Trading with Conservative Allocation and Medium Duration

The main advantage of trading using opposite Conservative Allocation and Medium Duration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Conservative Allocation position performs unexpectedly, Medium Duration 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 Medium Duration will offset losses from the drop in Medium Duration's long position.
The idea behind Conservative Allocation Fund and Medium Duration Bond Institutional 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 Anywhere module to track or share privately all of your investments from the convenience of any device.

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