Correlation Between Growth Equity and Medium-duration Bond
Can any of the company-specific risk be diversified away by investing in both Growth Equity and Medium-duration 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 Growth Equity and Medium-duration Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Growth Equity Investor and Medium Duration Bond Investor, you can compare the effects of market volatilities on Growth Equity and Medium-duration 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 Growth Equity with a short position of Medium-duration Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Growth Equity and Medium-duration Bond.
Diversification Opportunities for Growth Equity and Medium-duration Bond
-0.77 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Growth and Medium-duration is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Growth Equity Investor and Medium Duration Bond Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medium Duration Bond and Growth Equity 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 Growth Equity Investor are associated (or correlated) with Medium-duration Bond. 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 Growth Equity i.e., Growth Equity and Medium-duration Bond go up and down completely randomly.
Pair Corralation between Growth Equity and Medium-duration Bond
Assuming the 90 days horizon Growth Equity Investor is expected to generate 3.45 times more return on investment than Medium-duration Bond. However, Growth Equity is 3.45 times more volatile than Medium Duration Bond Investor. It trades about 0.09 of its potential returns per unit of risk. Medium Duration Bond Investor is currently generating about 0.09 per unit of risk. If you would invest 2,595 in Growth Equity Investor on September 3, 2024 and sell it today you would earn a total of 388.00 from holding Growth Equity Investor or generate 14.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Growth Equity Investor vs. Medium Duration Bond Investor
Performance |
| Timeline |
| Growth Equity Investor |
| Medium Duration Bond |
Growth Equity and Medium-duration Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Growth Equity and Medium-duration Bond
The main advantage of trading using opposite Growth Equity and Medium-duration Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Growth Equity position performs unexpectedly, Medium-duration 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 Medium-duration Bond will offset losses from the drop in Medium-duration Bond's long position.| Growth Equity vs. Short Term Government Fund | Growth Equity vs. Fidelity Series Government | Growth Equity vs. Prudential Government Income | Growth Equity vs. Us Government Securities |
| Medium-duration Bond vs. Value Equity Investor | Medium-duration Bond vs. Growth Equity Investor | Medium-duration Bond vs. International Equity Investor | Medium-duration Bond vs. Equity Index Investor |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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