Correlation Between Investment Grade and Real Return
Can any of the company-specific risk be diversified away by investing in both Investment Grade 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 Investment Grade and Real Return 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 Real Return Asset, you can compare the effects of market volatilities on Investment Grade 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 Investment Grade with a short position of Real Return. Check out your portfolio center. Please also check ongoing floating volatility patterns of Investment Grade and Real Return.
Diversification Opportunities for Investment Grade and Real Return
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Investment and Real is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Investment Grade Porate and Real Return Asset in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Return Asset 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 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 Asset has no effect on the direction of Investment Grade i.e., Investment Grade and Real Return go up and down completely randomly.
Pair Corralation between Investment Grade and Real Return
Assuming the 90 days horizon Investment Grade Porate is expected to generate 0.41 times more return on investment than Real Return. However, Investment Grade Porate is 2.41 times less risky than Real Return. It trades about -0.08 of its potential returns per unit of risk. Real Return Asset is currently generating about -0.09 per unit of risk. If you would invest 919.00 in Investment Grade Porate on September 3, 2024 and sell it today you would lose (11.00) from holding Investment Grade Porate or give up 1.2% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Investment Grade Porate vs. Real Return Asset
Performance |
| Timeline |
| Investment Grade Porate |
| Real Return Asset |
Investment Grade and Real Return Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Investment Grade and Real Return
The main advantage of trading using opposite Investment Grade and Real Return positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Investment Grade 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.| Investment Grade vs. Nasdaq 100 2x Strategy | Investment Grade vs. Commodities Strategy Fund | Investment Grade vs. The Emerging Markets | Investment Grade vs. T Rowe Price |
| Real Return vs. Gnma Fund Institutional | Real Return vs. Investment Grade Porate | Real Return vs. Long Term Government Fund | Real Return vs. Pimco Em Fundamental |
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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