Correlation Between Investment Grade and Investment Quality
Can any of the company-specific risk be diversified away by investing in both Investment Grade and Investment Quality 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 Investment Quality into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Investment Grade Bond and Investment Quality Bond, you can compare the effects of market volatilities on Investment Grade and Investment Quality 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 Investment Quality. Check out your portfolio center. Please also check ongoing floating volatility patterns of Investment Grade and Investment Quality.
Diversification Opportunities for Investment Grade and Investment Quality
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Investment and Investment is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Investment Grade Bond and Investment Quality Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investment Quality Bond 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 Bond are associated (or correlated) with Investment Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investment Quality Bond has no effect on the direction of Investment Grade i.e., Investment Grade and Investment Quality go up and down completely randomly.
Pair Corralation between Investment Grade and Investment Quality
Assuming the 90 days horizon Investment Grade Bond is expected to generate 1.2 times more return on investment than Investment Quality. However, Investment Grade is 1.2 times more volatile than Investment Quality Bond. It trades about 0.08 of its potential returns per unit of risk. Investment Quality Bond is currently generating about 0.08 per unit of risk. If you would invest 1,793 in Investment Grade Bond on September 3, 2024 and sell it today you would earn a total of 58.00 from holding Investment Grade Bond or generate 3.23% 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 Bond vs. Investment Quality Bond
Performance |
| Timeline |
| Investment Grade Bond |
| Investment Quality Bond |
Investment Grade and Investment Quality Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Investment Grade and Investment Quality
The main advantage of trading using opposite Investment Grade and Investment Quality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Investment Grade position performs unexpectedly, Investment Quality 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 Investment Quality will offset losses from the drop in Investment Quality's long position.| Investment Grade vs. Vanguard Total Bond | Investment Grade vs. Vanguard Total Bond | Investment Grade vs. Vanguard Total Bond | Investment Grade vs. Vanguard Total Bond |
| Investment Quality vs. Investment Of America | Investment Quality vs. Investment Grade Bond | Investment Quality vs. Investment Grade Bond | Investment Quality vs. Investment Grade Bond |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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