Correlation Between Total Return and Intermediate-term
Can any of the company-specific risk be diversified away by investing in both Total Return and Intermediate-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 Total Return and Intermediate-term into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Total Return Fund and Intermediate Term Bond Fund, you can compare the effects of market volatilities on Total Return and Intermediate-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 Total Return with a short position of Intermediate-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Total Return and Intermediate-term.
Diversification Opportunities for Total Return and Intermediate-term
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Total and Intermediate-term is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Total Return Fund and Intermediate Term Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Term Bond and Total 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 Total Return Fund are associated (or correlated) with Intermediate-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Term Bond has no effect on the direction of Total Return i.e., Total Return and Intermediate-term go up and down completely randomly.
Pair Corralation between Total Return and Intermediate-term
Assuming the 90 days horizon Total Return Fund is expected to generate 0.99 times more return on investment than Intermediate-term. However, Total Return Fund is 1.01 times less risky than Intermediate-term. It trades about 0.09 of its potential returns per unit of risk. Intermediate Term Bond Fund is currently generating about 0.05 per unit of risk. If you would invest 855.00 in Total Return Fund on August 29, 2024 and sell it today you would earn a total of 6.00 from holding Total Return Fund or generate 0.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Total Return Fund vs. Intermediate Term Bond Fund
Performance |
| Timeline |
| Total Return |
| Intermediate Term Bond |
Total Return and Intermediate-term Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Total Return and Intermediate-term
The main advantage of trading using opposite Total Return and Intermediate-term positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Total Return position performs unexpectedly, Intermediate-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 Intermediate-term will offset losses from the drop in Intermediate-term's long position.| Total Return vs. Vanguard Institutional Index | Total Return vs. Dodge Stock Fund | Total Return vs. Europacific Growth Fund | Total Return vs. Real Return Fund |
| Intermediate-term vs. Kinetics Global Fund | Intermediate-term vs. T Rowe Price | Intermediate-term vs. Wisdomtree Siegel Global | Intermediate-term vs. Barings Global Floating |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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