Correlation Between Short Duration and Us Defensive
Can any of the company-specific risk be diversified away by investing in both Short Duration and Us Defensive 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 Us Defensive 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 Us Defensive Equity, you can compare the effects of market volatilities on Short Duration and Us Defensive 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 Us Defensive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Duration and Us Defensive.
Diversification Opportunities for Short Duration and Us Defensive
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Short and REUYX is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Short Duration Bond and Us Defensive Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Defensive 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 Us Defensive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Defensive Equity has no effect on the direction of Short Duration i.e., Short Duration and Us Defensive go up and down completely randomly.
Pair Corralation between Short Duration and Us Defensive
Assuming the 90 days horizon Short Duration is expected to generate 10.5 times less return on investment than Us Defensive. But when comparing it to its historical volatility, Short Duration Bond is 6.4 times less risky than Us Defensive. It trades about 0.2 of its potential returns per unit of risk. Us Defensive Equity is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest 4,952 in Us Defensive Equity on September 1, 2024 and sell it today you would earn a total of 253.00 from holding Us Defensive Equity or generate 5.11% 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. Us Defensive Equity
Performance |
| Timeline |
| Short Duration Bond |
| Us Defensive Equity |
Short Duration and Us Defensive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short Duration and Us Defensive
The main advantage of trading using opposite Short Duration and Us Defensive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short Duration position performs unexpectedly, Us Defensive 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 Us Defensive will offset losses from the drop in Us Defensive'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 |
| Us Defensive vs. International Developed Markets | Us Defensive vs. Global Real Estate | Us Defensive vs. Global Real Estate | Us Defensive 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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