Correlation Between Medium-duration Bond and Defensive Market
Can any of the company-specific risk be diversified away by investing in both Medium-duration Bond and Defensive Market 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 Defensive Market into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Medium Duration Bond Investor and Defensive Market Strategies, you can compare the effects of market volatilities on Medium-duration Bond and Defensive Market 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 Defensive Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of Medium-duration Bond and Defensive Market.
Diversification Opportunities for Medium-duration Bond and Defensive Market
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Medium-duration and Defensive is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Medium Duration Bond Investor and Defensive Market Strategies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defensive Market Str 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 Investor are associated (or correlated) with Defensive Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defensive Market Str has no effect on the direction of Medium-duration Bond i.e., Medium-duration Bond and Defensive Market go up and down completely randomly.
Pair Corralation between Medium-duration Bond and Defensive Market
Assuming the 90 days horizon Medium Duration Bond Investor is expected to generate 0.35 times more return on investment than Defensive Market. However, Medium Duration Bond Investor is 2.88 times less risky than Defensive Market. It trades about 0.04 of its potential returns per unit of risk. Defensive Market Strategies is currently generating about -0.05 per unit of risk. If you would invest 1,245 in Medium Duration Bond Investor on November 1, 2024 and sell it today you would earn a total of 9.00 from holding Medium Duration Bond Investor or generate 0.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 98.33% |
| Values | Daily Returns |
Medium Duration Bond Investor vs. Defensive Market Strategies
Performance |
| Timeline |
| Medium Duration Bond |
| Defensive Market Str |
Medium-duration Bond and Defensive Market Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Medium-duration Bond and Defensive Market
The main advantage of trading using opposite Medium-duration Bond and Defensive Market positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Medium-duration Bond position performs unexpectedly, Defensive Market 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 Defensive Market will offset losses from the drop in Defensive Market's long position.The idea behind Medium Duration Bond Investor and Defensive Market Strategies 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.
| Defensive Market vs. Growth Allocation Fund | Defensive Market vs. Defensive Market Strategies | Defensive Market vs. Value Equity Institutional | Defensive Market vs. Value Equity 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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