Correlation Between Short Duration and Select Equity
Can any of the company-specific risk be diversified away by investing in both Short Duration and Select Equity 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 Select Equity 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 Select Equity Fund, you can compare the effects of market volatilities on Short Duration and Select Equity 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 Select Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Duration and Select Equity.
Diversification Opportunities for Short Duration and Select Equity
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Short and Select is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Short Duration Bond and Select Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Equity 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 Select Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Equity has no effect on the direction of Short Duration i.e., Short Duration and Select Equity go up and down completely randomly.
Pair Corralation between Short Duration and Select Equity
Assuming the 90 days horizon Short Duration is expected to generate 43.49 times less return on investment than Select Equity. But when comparing it to its historical volatility, Short Duration Bond is 8.4 times less risky than Select Equity. It trades about 0.05 of its potential returns per unit of risk. Select Equity Fund is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 1,976 in Select Equity Fund on August 29, 2024 and sell it today you would earn a total of 93.00 from holding Select Equity Fund or generate 4.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Short Duration Bond vs. Select Equity Fund
Performance |
| Timeline |
| Short Duration Bond |
| Select Equity |
Short Duration and Select Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short Duration and Select Equity
The main advantage of trading using opposite Short Duration and Select Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short Duration position performs unexpectedly, Select Equity 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 Select Equity will offset losses from the drop in Select Equity's long position.| Short Duration vs. International Developed Markets | Short Duration vs. Global Real Estate | Short Duration vs. Global Real Estate | Short Duration vs. Global Real Estate |
| Select Equity vs. International Developed Markets | Select Equity vs. Global Real Estate | Select Equity vs. Global Real Estate | Select Equity vs. Global Real Estate |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
Other Complementary Tools
| Equity Forecasting Use basic forecasting models to generate price predictions and determine price momentum | |
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios | |
| Companies Directory Evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals | |
| Portfolio Anywhere Track or share privately all of your investments from the convenience of any device | |
| Transaction History View history of all your transactions and understand their impact on performance |