Correlation Between Short Duration and Short Term
Can any of the company-specific risk be diversified away by investing in both Short Duration and Short 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 Short Duration and Short Term into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Short Duration Bond and Short Term Bond Fund, you can compare the effects of market volatilities on Short Duration and Short 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 Short Duration with a short position of Short Term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Duration and Short Term.
Diversification Opportunities for Short Duration and Short Term
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Short and Short is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Short Duration Bond and Short Term Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Bond and Short Duration 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 Short Duration Bond are associated (or correlated) with Short Term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Bond has no effect on the direction of Short Duration i.e., Short Duration and Short Term go up and down completely randomly.
Pair Corralation between Short Duration and Short Term
Assuming the 90 days horizon Short Duration is expected to generate 2.07 times less return on investment than Short Term. But when comparing it to its historical volatility, Short Duration Bond is 1.34 times less risky than Short Term. It trades about 0.1 of its potential returns per unit of risk. Short Term Bond Fund is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 905.00 in Short Term Bond Fund on August 28, 2024 and sell it today you would earn a total of 4.00 from holding Short Term Bond Fund or generate 0.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Short Duration Bond vs. Short Term Bond Fund
Performance |
| Timeline |
| Short Duration Bond |
| Short Term Bond |
Short Duration and Short Term Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short Duration and Short Term
The main advantage of trading using opposite Short Duration and Short Term positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short Duration position performs unexpectedly, Short 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 Short Term will offset losses from the drop in Short Term's long position.| Short Duration vs. Ab Bond Inflation | Short Duration vs. Western Asset Inflation | Short Duration vs. Vy Blackrock Inflation | Short Duration vs. Guidepath Managed Futures |
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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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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