Correlation Between Global Bond and Rational Defensive
Can any of the company-specific risk be diversified away by investing in both Global Bond and Rational Defensive 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 Global Bond and Rational Defensive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global Bond Fund and Rational Defensive Growth, you can compare the effects of market volatilities on Global Bond and Rational Defensive 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 Global Bond with a short position of Rational Defensive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Bond and Rational Defensive.
Diversification Opportunities for Global Bond and Rational Defensive
-0.68 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Global and Rational is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Global Bond Fund and Rational Defensive Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rational Defensive Growth and Global Bond 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 Global Bond Fund are associated (or correlated) with Rational Defensive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rational Defensive Growth has no effect on the direction of Global Bond i.e., Global Bond and Rational Defensive go up and down completely randomly.
Pair Corralation between Global Bond and Rational Defensive
Assuming the 90 days horizon Global Bond is expected to generate 8.02 times less return on investment than Rational Defensive. But when comparing it to its historical volatility, Global Bond Fund is 3.54 times less risky than Rational Defensive. It trades about 0.04 of its potential returns per unit of risk. Rational Defensive Growth is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 2,547 in Rational Defensive Growth on September 3, 2024 and sell it today you would earn a total of 1,495 from holding Rational Defensive Growth or generate 58.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Global Bond Fund vs. Rational Defensive Growth
Performance |
| Timeline |
| Global Bond Fund |
| Rational Defensive Growth |
Global Bond and Rational Defensive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Global Bond and Rational Defensive
The main advantage of trading using opposite Global Bond and Rational Defensive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Bond position performs unexpectedly, Rational Defensive 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 Rational Defensive will offset losses from the drop in Rational Defensive's long position.| Global Bond vs. Global Advantage Portfolio | Global Bond vs. Global Strategist Portfolio | Global Bond vs. Global Strategist Portfolio | Global Bond vs. Global Equity 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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