Correlation Between Value Equity and Medium Duration
Can any of the company-specific risk be diversified away by investing in both Value Equity 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 Value Equity and Medium Duration into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Value Equity Investor and Medium Duration Bond Institutional, you can compare the effects of market volatilities on Value Equity 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 Value Equity with a short position of Medium Duration. Check out your portfolio center. Please also check ongoing floating volatility patterns of Value Equity and Medium Duration.
Diversification Opportunities for Value Equity and Medium Duration
-0.71 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Value and Medium is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Value Equity Investor 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 Value 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 Value Equity Investor 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 Value Equity i.e., Value Equity and Medium Duration go up and down completely randomly.
Pair Corralation between Value Equity and Medium Duration
Assuming the 90 days horizon Value Equity Investor is expected to generate 2.26 times more return on investment than Medium Duration. However, Value Equity is 2.26 times more volatile than Medium Duration Bond Institutional. It trades about 0.32 of its potential returns per unit of risk. Medium Duration Bond Institutional is currently generating about 0.1 per unit of risk. If you would invest 2,065 in Value Equity Investor on September 1, 2024 and sell it today you would earn a total of 111.00 from holding Value Equity Investor or generate 5.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Value Equity Investor vs. Medium Duration Bond Instituti
Performance |
| Timeline |
| Value Equity Investor |
| Medium Duration Bond |
Value Equity and Medium Duration Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Value Equity and Medium Duration
The main advantage of trading using opposite Value Equity and Medium Duration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Value Equity 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.| Value Equity vs. Gmo High Yield | Value Equity vs. Siit High Yield | Value Equity vs. Western Asset High | Value Equity vs. Pace High Yield |
| Medium Duration vs. Calamos Dynamic Convertible | Medium Duration vs. Gabelli Convertible And | Medium Duration vs. Harbor Vertible Securities | Medium Duration vs. The Gamco Global |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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