Correlation Between Investment Grade and California Bond
Can any of the company-specific risk be diversified away by investing in both Investment Grade and California Bond 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 Investment Grade and California Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Investment Grade Porate and California Bond Fund, you can compare the effects of market volatilities on Investment Grade and California Bond 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 Investment Grade with a short position of California Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Investment Grade and California Bond.
Diversification Opportunities for Investment Grade and California Bond
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Investment and California is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Investment Grade Porate and California Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Bond and Investment Grade 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 Investment Grade Porate are associated (or correlated) with California Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Bond has no effect on the direction of Investment Grade i.e., Investment Grade and California Bond go up and down completely randomly.
Pair Corralation between Investment Grade and California Bond
Assuming the 90 days horizon Investment Grade is expected to generate 1.6 times less return on investment than California Bond. In addition to that, Investment Grade is 1.15 times more volatile than California Bond Fund. It trades about 0.11 of its total potential returns per unit of risk. California Bond Fund is currently generating about 0.2 per unit of volatility. If you would invest 1,038 in California Bond Fund on September 5, 2024 and sell it today you would earn a total of 15.00 from holding California Bond Fund or generate 1.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Investment Grade Porate vs. California Bond Fund
Performance |
| Timeline |
| Investment Grade Porate |
| California Bond |
Investment Grade and California Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Investment Grade and California Bond
The main advantage of trading using opposite Investment Grade and California Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Investment Grade position performs unexpectedly, California Bond 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 California Bond will offset losses from the drop in California Bond's long position.| Investment Grade vs. California Bond Fund | Investment Grade vs. The National Tax Free | Investment Grade vs. Multisector Bond Sma | Investment Grade vs. T Rowe Price |
| California Bond vs. Maryland Short Term Tax Free | California Bond vs. Siit Ultra Short | California Bond vs. Calvert Short Duration | California Bond vs. Rbc Short Duration |
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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