Correlation Between Inflation-protected and Global Core

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Can any of the company-specific risk be diversified away by investing in both Inflation-protected and Global Core 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 Global Core 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 Global E Portfolio, you can compare the effects of market volatilities on Inflation-protected and Global Core 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 Global Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inflation-protected and Global Core.

Diversification Opportunities for Inflation-protected and Global Core

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between Inflation-protected and Global is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Inflation Protected Bond Fund and Global E Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global E Portfolio 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 Global Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global E Portfolio has no effect on the direction of Inflation-protected i.e., Inflation-protected and Global Core go up and down completely randomly.

Pair Corralation between Inflation-protected and Global Core

Assuming the 90 days horizon Inflation Protected Bond Fund is expected to generate 0.73 times more return on investment than Global Core. However, Inflation Protected Bond Fund is 1.37 times less risky than Global Core. It trades about -0.29 of its potential returns per unit of risk. Global E Portfolio is currently generating about -0.22 per unit of risk. If you would invest  1,058  in Inflation Protected Bond Fund on October 12, 2024 and sell it today you would lose (38.00) from holding Inflation Protected Bond Fund or give up 3.59% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Inflation Protected Bond Fund  vs.  Global E Portfolio

 Performance 
       Timeline  
Inflation Protected 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Inflation Protected Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Inflation-protected is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Global E Portfolio 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Global E Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Global Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Inflation-protected and Global Core Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Inflation-protected and Global Core

The main advantage of trading using opposite Inflation-protected and Global Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inflation-protected position performs unexpectedly, Global Core 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 Global Core will offset losses from the drop in Global Core's long position.
The idea behind Inflation Protected Bond Fund and Global E Portfolio 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.
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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