Correlation Between Multifactor and Strategic Bond
Can any of the company-specific risk be diversified away by investing in both Multifactor and Strategic Bond 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 Multifactor and Strategic Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Multifactor Equity Fund and Strategic Bond Fund, you can compare the effects of market volatilities on Multifactor and Strategic Bond 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 Multifactor with a short position of Strategic Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Multifactor and Strategic Bond.
Diversification Opportunities for Multifactor and Strategic Bond
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Multifactor and Strategic is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Multifactor Equity Fund and Strategic Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Bond and Multifactor 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 Multifactor Equity Fund are associated (or correlated) with Strategic Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategic Bond has no effect on the direction of Multifactor i.e., Multifactor and Strategic Bond go up and down completely randomly.
Pair Corralation between Multifactor and Strategic Bond
Assuming the 90 days horizon Multifactor Equity Fund is expected to under-perform the Strategic Bond. In addition to that, Multifactor is 2.7 times more volatile than Strategic Bond Fund. It trades about -0.14 of its total potential returns per unit of risk. Strategic Bond Fund is currently generating about 0.29 per unit of volatility. If you would invest 885.00 in Strategic Bond Fund on December 1, 2024 and sell it today you would earn a total of 17.00 from holding Strategic Bond Fund or generate 1.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Multifactor Equity Fund vs. Strategic Bond Fund
Performance |
| Timeline |
| Multifactor Equity |
| Strategic Bond |
Multifactor and Strategic Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Multifactor and Strategic Bond
The main advantage of trading using opposite Multifactor and Strategic Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Multifactor position performs unexpectedly, Strategic Bond 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 Strategic Bond will offset losses from the drop in Strategic Bond's long position.| Multifactor vs. Aqr Risk Parity | Multifactor vs. Access Flex High | Multifactor vs. Metropolitan West High | Multifactor vs. Barings High Yield |
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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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