Correlation Between Morningstar Defensive and New World
Can any of the company-specific risk be diversified away by investing in both Morningstar Defensive and New World 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 Morningstar Defensive and New World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Morningstar Defensive Bond and New World Fund, you can compare the effects of market volatilities on Morningstar Defensive and New World 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 Morningstar Defensive with a short position of New World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morningstar Defensive and New World.
Diversification Opportunities for Morningstar Defensive and New World
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Morningstar and New is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Defensive Bond and New World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New World Fund and Morningstar Defensive 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 Morningstar Defensive Bond are associated (or correlated) with New World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New World Fund has no effect on the direction of Morningstar Defensive i.e., Morningstar Defensive and New World go up and down completely randomly.
Pair Corralation between Morningstar Defensive and New World
Assuming the 90 days horizon Morningstar Defensive is expected to generate 2.1 times less return on investment than New World. But when comparing it to its historical volatility, Morningstar Defensive Bond is 4.52 times less risky than New World. It trades about 0.14 of its potential returns per unit of risk. New World Fund is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 6,464 in New World Fund on September 15, 2024 and sell it today you would earn a total of 1,643 from holding New World Fund or generate 25.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Morningstar Defensive Bond vs. New World Fund
Performance |
| Timeline |
| Morningstar Defensive |
| New World Fund |
Morningstar Defensive and New World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Morningstar Defensive and New World
The main advantage of trading using opposite Morningstar Defensive and New World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morningstar Defensive position performs unexpectedly, New World 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 New World will offset losses from the drop in New World's long position.The idea behind Morningstar Defensive Bond and New World Fund 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.
| New World vs. Versatile Bond Portfolio | New World vs. Dws Government Money | New World vs. Western Asset Municipal | New World vs. Morningstar Defensive Bond |
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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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