Correlation Between Inflation Protected and First American
Can any of the company-specific risk be diversified away by investing in both Inflation Protected and First American 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 Inflation Protected and First American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Inflation Protected Bond Fund and First American Funds, you can compare the effects of market volatilities on Inflation Protected and First American 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 Inflation Protected with a short position of First American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inflation Protected and First American.
Diversification Opportunities for Inflation Protected and First American
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Inflation and First is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Inflation Protected Bond Fund and First American Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First American Funds and Inflation Protected 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 Inflation Protected Bond Fund are associated (or correlated) with First American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First American Funds has no effect on the direction of Inflation Protected i.e., Inflation Protected and First American go up and down completely randomly.
Pair Corralation between Inflation Protected and First American
Assuming the 90 days horizon Inflation Protected is expected to generate 24.05 times less return on investment than First American. But when comparing it to its historical volatility, Inflation Protected Bond Fund is 45.48 times less risky than First American. It trades about 0.08 of its potential returns per unit of risk. First American Funds is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 94.00 in First American Funds on September 12, 2024 and sell it today you would earn a total of 6.00 from holding First American Funds or generate 6.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Inflation Protected Bond Fund vs. First American Funds
Performance |
| Timeline |
| Inflation Protected |
| First American Funds |
Inflation Protected and First American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Inflation Protected and First American
The main advantage of trading using opposite Inflation Protected and First American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inflation Protected position performs unexpectedly, First American 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 First American will offset losses from the drop in First American's long position.| Inflation Protected vs. Touchstone Premium Yield | Inflation Protected vs. Multisector Bond Sma | Inflation Protected vs. T Rowe Price | Inflation Protected vs. Alliancebernstein National Municipal |
| First American vs. Siit Ultra Short | First American vs. Quantitative Longshort Equity | First American vs. Rbc Short Duration | First American vs. Franklin Federal Limited Term |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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