Correlation Between Real Return and Low Duration
Can any of the company-specific risk be diversified away by investing in both Real Return and Low Duration 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 Real Return and Low Duration into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Real Return Fund and Low Duration Fund, you can compare the effects of market volatilities on Real Return and Low Duration 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 Real Return with a short position of Low Duration. Check out your portfolio center. Please also check ongoing floating volatility patterns of Real Return and Low Duration.
Diversification Opportunities for Real Return and Low Duration
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Real and Low is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Real Return Fund and Low Duration Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Low Duration and Real Return 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 Real Return Fund are associated (or correlated) with Low Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Low Duration has no effect on the direction of Real Return i.e., Real Return and Low Duration go up and down completely randomly.
Pair Corralation between Real Return and Low Duration
Assuming the 90 days horizon Real Return Fund is expected to generate 2.71 times more return on investment than Low Duration. However, Real Return is 2.71 times more volatile than Low Duration Fund. It trades about 0.41 of its potential returns per unit of risk. Low Duration Fund is currently generating about 0.28 per unit of risk. If you would invest 1,008 in Real Return Fund on December 1, 2024 and sell it today you would earn a total of 26.00 from holding Real Return Fund or generate 2.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Real Return Fund vs. Low Duration Fund
Performance |
| Timeline |
| Real Return Fund |
| Low Duration |
Real Return and Low Duration Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Real Return and Low Duration
The main advantage of trading using opposite Real Return and Low Duration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Real Return position performs unexpectedly, Low Duration 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 Low Duration will offset losses from the drop in Low Duration's long position.| Real Return vs. Aqr Diversified Arbitrage | Real Return vs. Manning Napier Diversified | Real Return vs. American Funds Conservative | Real Return vs. Harbor Diversified International |
| Low Duration vs. Jhancock Diversified Macro | Low Duration vs. Investec Emerging Markets | Low Duration vs. Calvert Developed Market | Low Duration vs. Pnc Emerging Markets |
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.
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