Correlation Between Foreign Bond and Real Return
Can any of the company-specific risk be diversified away by investing in both Foreign Bond and Real Return 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 Foreign Bond and Real Return into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Foreign Bond Fund and Real Return Fund, you can compare the effects of market volatilities on Foreign Bond and Real Return 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 Foreign Bond with a short position of Real Return. Check out your portfolio center. Please also check ongoing floating volatility patterns of Foreign Bond and Real Return.
Diversification Opportunities for Foreign Bond and Real Return
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Foreign and Real is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Foreign Bond Fund and Real Return Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Return Fund and Foreign Bond 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 Foreign Bond Fund are associated (or correlated) with Real Return. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Real Return Fund has no effect on the direction of Foreign Bond i.e., Foreign Bond and Real Return go up and down completely randomly.
Pair Corralation between Foreign Bond and Real Return
Assuming the 90 days horizon Foreign Bond is expected to generate 1.0 times less return on investment than Real Return. In addition to that, Foreign Bond is 1.24 times more volatile than Real Return Fund. It trades about 0.05 of its total potential returns per unit of risk. Real Return Fund is currently generating about 0.07 per unit of volatility. If you would invest 944.00 in Real Return Fund on September 12, 2024 and sell it today you would earn a total of 71.00 from holding Real Return Fund or generate 7.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Foreign Bond Fund vs. Real Return Fund
Performance |
| Timeline |
| Foreign Bond |
| Real Return Fund |
Foreign Bond and Real Return Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Foreign Bond and Real Return
The main advantage of trading using opposite Foreign Bond and Real Return positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Foreign Bond position performs unexpectedly, Real Return 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 Real Return will offset losses from the drop in Real Return's long position.| Foreign Bond vs. Energy Basic Materials | Foreign Bond vs. Invesco Energy Fund | Foreign Bond vs. Thrivent Natural Resources | Foreign Bond vs. Icon Natural Resources |
| Real Return vs. Vanguard Inflation Protected Securities | Real Return vs. Vanguard Inflation Protected Securities | Real Return vs. American Funds Inflation | Real Return vs. American Funds Inflation |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
Other Complementary Tools
| AI Portfolio Architect Use AI to generate optimal portfolios and find profitable investment opportunities | |
| Piotroski F Score Get Piotroski F Score based on the binary analysis strategy of nine different fundamentals | |
| Idea Optimizer Use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio | |
| Portfolio Holdings Check your current holdings and cash postion to detemine if your portfolio needs rebalancing | |
| Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. |