Correlation Between Foreign Bond and Investment Grade
Can any of the company-specific risk be diversified away by investing in both Foreign Bond and Investment Grade 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 Investment Grade 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 Investment Grade Porate, you can compare the effects of market volatilities on Foreign Bond and Investment Grade 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 Investment Grade. Check out your portfolio center. Please also check ongoing floating volatility patterns of Foreign Bond and Investment Grade.
Diversification Opportunities for Foreign Bond and Investment Grade
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Foreign and Investment is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Foreign Bond Fund and Investment Grade Porate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investment Grade Porate 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 Investment Grade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investment Grade Porate has no effect on the direction of Foreign Bond i.e., Foreign Bond and Investment Grade go up and down completely randomly.
Pair Corralation between Foreign Bond and Investment Grade
Assuming the 90 days horizon Foreign Bond Fund is expected to under-perform the Investment Grade. In addition to that, Foreign Bond is 1.14 times more volatile than Investment Grade Porate. It trades about -0.14 of its total potential returns per unit of risk. Investment Grade Porate is currently generating about 0.08 per unit of volatility. If you would invest 898.00 in Investment Grade Porate on August 27, 2024 and sell it today you would earn a total of 6.00 from holding Investment Grade Porate or generate 0.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Foreign Bond Fund vs. Investment Grade Porate
Performance |
| Timeline |
| Foreign Bond |
| Investment Grade Porate |
Foreign Bond and Investment Grade Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Foreign Bond and Investment Grade
The main advantage of trading using opposite Foreign Bond and Investment Grade positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Foreign Bond position performs unexpectedly, Investment Grade 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 Investment Grade will offset losses from the drop in Investment Grade's long position.| Foreign Bond vs. Usaa Mutual Funds | Foreign Bond vs. Franklin Government Money | Foreign Bond vs. T Rowe Price | Foreign Bond vs. Legg Mason Partners |
| Investment Grade vs. Pro Blend Moderate Term | Investment Grade vs. Qs Moderate Growth | Investment Grade vs. Pgim Conservative Retirement | Investment Grade vs. Blackrock Moderate Prepared |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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