Correlation Between Blue Chip and Inflation Protection
Can any of the company-specific risk be diversified away by investing in both Blue Chip and Inflation Protection 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 Blue Chip and Inflation Protection into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Blue Chip Fund and Inflation Protection Fund, you can compare the effects of market volatilities on Blue Chip and Inflation Protection 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 Blue Chip with a short position of Inflation Protection. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blue Chip and Inflation Protection.
Diversification Opportunities for Blue Chip and Inflation Protection
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Blue and Inflation is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Blue Chip Fund and Inflation Protection Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inflation Protection and Blue Chip 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 Blue Chip Fund are associated (or correlated) with Inflation Protection. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inflation Protection has no effect on the direction of Blue Chip i.e., Blue Chip and Inflation Protection go up and down completely randomly.
Pair Corralation between Blue Chip and Inflation Protection
Assuming the 90 days horizon Blue Chip Fund is expected to generate 2.66 times more return on investment than Inflation Protection. However, Blue Chip is 2.66 times more volatile than Inflation Protection Fund. It trades about 0.11 of its potential returns per unit of risk. Inflation Protection Fund is currently generating about 0.03 per unit of risk. If you would invest 2,838 in Blue Chip Fund on November 30, 2024 and sell it today you would earn a total of 1,820 from holding Blue Chip Fund or generate 64.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Blue Chip Fund vs. Inflation Protection Fund
Performance |
| Timeline |
| Blue Chip Fund |
| Inflation Protection |
Blue Chip and Inflation Protection Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Blue Chip and Inflation Protection
The main advantage of trading using opposite Blue Chip and Inflation Protection positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Blue Chip position performs unexpectedly, Inflation Protection 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 Inflation Protection will offset losses from the drop in Inflation Protection's long position.| Blue Chip vs. Guidemark E Fixed | Blue Chip vs. T Rowe Price | Blue Chip vs. Federated Government Income | Blue Chip vs. Scharf Global Opportunity |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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