Correlation Between Investment Grade and Long-term
Can any of the company-specific risk be diversified away by investing in both Investment Grade and Long-term 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 Long-term 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 Long Term Government Fund, you can compare the effects of market volatilities on Investment Grade and Long-term 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 Long-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Investment Grade and Long-term.
Diversification Opportunities for Investment Grade and Long-term
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Investment and Long-term is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Investment Grade Porate and Long Term Government Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Long Term Government 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 Long-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Long Term Government has no effect on the direction of Investment Grade i.e., Investment Grade and Long-term go up and down completely randomly.
Pair Corralation between Investment Grade and Long-term
Assuming the 90 days horizon Investment Grade Porate is expected to generate 0.45 times more return on investment than Long-term. However, Investment Grade Porate is 2.24 times less risky than Long-term. It trades about 0.06 of its potential returns per unit of risk. Long Term Government Fund is currently generating about 0.0 per unit of risk. If you would invest 826.00 in Investment Grade Porate on September 2, 2024 and sell it today you would earn a total of 82.00 from holding Investment Grade Porate or generate 9.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Investment Grade Porate vs. Long Term Government Fund
Performance |
| Timeline |
| Investment Grade Porate |
| Long Term Government |
Investment Grade and Long-term Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Investment Grade and Long-term
The main advantage of trading using opposite Investment Grade and Long-term positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Investment Grade position performs unexpectedly, Long-term 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 Long-term will offset losses from the drop in Long-term's long position.| Investment Grade vs. Calamos Short Term Bond | Investment Grade vs. Inflation Protected Bond Fund | Investment Grade vs. Bbh Intermediate Municipal | Investment Grade vs. Ab Global Bond |
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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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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