Correlation Between Long Term and Short Duration
Can any of the company-specific risk be diversified away by investing in both Long Term and Short 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 Long Term and Short Duration into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Long Term Government Fund and Short Duration Income, you can compare the effects of market volatilities on Long Term and Short 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 Long Term with a short position of Short Duration. Check out your portfolio center. Please also check ongoing floating volatility patterns of Long Term and Short Duration.
Diversification Opportunities for Long Term and Short Duration
-0.65 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Long and Short is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Long Term Government Fund and Short Duration Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Duration Income and Long Term 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 Long Term Government Fund are associated (or correlated) with Short Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Duration Income has no effect on the direction of Long Term i.e., Long Term and Short Duration go up and down completely randomly.
Pair Corralation between Long Term and Short Duration
Assuming the 90 days horizon Long Term Government Fund is expected to generate 94.66 times more return on investment than Short Duration. However, Long Term is 94.66 times more volatile than Short Duration Income. It trades about 0.03 of its potential returns per unit of risk. Short Duration Income is currently generating about 0.13 per unit of risk. If you would invest 1,442 in Long Term Government Fund on September 13, 2024 and sell it today you would lose (25.00) from holding Long Term Government Fund or give up 1.73% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 85.86% |
| Values | Daily Returns |
Long Term Government Fund vs. Short Duration Income
Performance |
| Timeline |
| Long Term Government |
| Short Duration Income |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Long Term and Short Duration Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Long Term and Short Duration
The main advantage of trading using opposite Long Term and Short Duration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Long Term position performs unexpectedly, Short 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 Short Duration will offset losses from the drop in Short Duration's long position.| Long Term vs. Pimco Rae Worldwide | Long Term vs. Pimco Foreign Bond | Long Term vs. Pimco Preferred And | Long Term vs. Pimco Fundamental Advantage |
| Short Duration vs. Buffalo High Yield | Short Duration vs. Strategic Advisers Income | Short Duration vs. Msift High Yield | Short Duration vs. T Rowe Price |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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