Correlation Between Medium-duration Bond and International Equity
Can any of the company-specific risk be diversified away by investing in both Medium-duration Bond and International Equity 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 Medium-duration Bond and International Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Medium Duration Bond Institutional and International Equity Institutional, you can compare the effects of market volatilities on Medium-duration Bond and International Equity 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 Medium-duration Bond with a short position of International Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Medium-duration Bond and International Equity.
Diversification Opportunities for Medium-duration Bond and International Equity
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Medium-duration and International is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Medium Duration Bond Instituti and International Equity Instituti in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity and Medium-duration 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 Medium Duration Bond Institutional are associated (or correlated) with International Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Equity has no effect on the direction of Medium-duration Bond i.e., Medium-duration Bond and International Equity go up and down completely randomly.
Pair Corralation between Medium-duration Bond and International Equity
Assuming the 90 days horizon Medium Duration Bond Institutional is expected to generate 0.37 times more return on investment than International Equity. However, Medium Duration Bond Institutional is 2.72 times less risky than International Equity. It trades about -0.07 of its potential returns per unit of risk. International Equity Institutional is currently generating about -0.06 per unit of risk. If you would invest 1,290 in Medium Duration Bond Institutional on August 28, 2024 and sell it today you would lose (17.00) from holding Medium Duration Bond Institutional or give up 1.32% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Medium Duration Bond Instituti vs. International Equity Instituti
Performance |
| Timeline |
| Medium Duration Bond |
| International Equity |
Medium-duration Bond and International Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Medium-duration Bond and International Equity
The main advantage of trading using opposite Medium-duration Bond and International Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Medium-duration Bond position performs unexpectedly, International Equity 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 International Equity will offset losses from the drop in International Equity's long position.| Medium-duration Bond vs. Value Equity Investor | Medium-duration Bond vs. Growth Equity Investor | Medium-duration Bond vs. Equity Index Investor | Medium-duration Bond vs. Low Duration Bond Investor |
| International Equity vs. Ab Global Risk | International Equity vs. Ab Global Bond | International Equity vs. Barings Global Floating | International Equity vs. Dodge Global Stock |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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