Correlation Between Short Duration and Moderate Strategy
Can any of the company-specific risk be diversified away by investing in both Short Duration and Moderate Strategy 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 Moderate Strategy 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 Moderate Strategy Fund, you can compare the effects of market volatilities on Short Duration and Moderate Strategy 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 Moderate Strategy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Duration and Moderate Strategy.
Diversification Opportunities for Short Duration and Moderate Strategy
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Short and Moderate is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Short Duration Bond and Moderate Strategy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moderate Strategy 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 Moderate Strategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moderate Strategy has no effect on the direction of Short Duration i.e., Short Duration and Moderate Strategy go up and down completely randomly.
Pair Corralation between Short Duration and Moderate Strategy
Assuming the 90 days horizon Short Duration Bond is expected to under-perform the Moderate Strategy. But the mutual fund apears to be less risky and, when comparing its historical volatility, Short Duration Bond is 3.07 times less risky than Moderate Strategy. The mutual fund trades about -0.14 of its potential returns per unit of risk. The Moderate Strategy Fund is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 981.00 in Moderate Strategy Fund on August 28, 2024 and sell it today you would lose (6.00) from holding Moderate Strategy Fund or give up 0.61% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Short Duration Bond vs. Moderate Strategy Fund
Performance |
| Timeline |
| Short Duration Bond |
| Moderate Strategy |
Short Duration and Moderate Strategy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short Duration and Moderate Strategy
The main advantage of trading using opposite Short Duration and Moderate Strategy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short Duration position performs unexpectedly, Moderate Strategy 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 Moderate Strategy will offset losses from the drop in Moderate Strategy'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 |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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