Correlation Between Multifactor and Short Duration
Can any of the company-specific risk be diversified away by investing in both Multifactor and Short Duration 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 Short Duration 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 Short Duration Bond, you can compare the effects of market volatilities on Multifactor and Short Duration 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 Short Duration. Check out your portfolio center. Please also check ongoing floating volatility patterns of Multifactor and Short Duration.
Diversification Opportunities for Multifactor and Short Duration
-0.47 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Multifactor and Short is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Multifactor Equity Fund and Short Duration Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Duration 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 Short Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Duration Bond has no effect on the direction of Multifactor i.e., Multifactor and Short Duration go up and down completely randomly.
Pair Corralation between Multifactor and Short Duration
Assuming the 90 days horizon Multifactor Equity Fund is expected to generate 6.11 times more return on investment than Short Duration. However, Multifactor is 6.11 times more volatile than Short Duration Bond. It trades about 0.13 of its potential returns per unit of risk. Short Duration Bond is currently generating about 0.16 per unit of risk. If you would invest 1,539 in Multifactor Equity Fund on August 25, 2024 and sell it today you would earn a total of 520.00 from holding Multifactor Equity Fund or generate 33.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Multifactor Equity Fund vs. Short Duration Bond
Performance |
| Timeline |
| Multifactor Equity |
| Short Duration Bond |
Multifactor and Short Duration Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Multifactor and Short Duration
The main advantage of trading using opposite Multifactor and Short Duration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Multifactor position performs unexpectedly, Short Duration 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 Duration will offset losses from the drop in Short Duration's long position.| Multifactor vs. Ab Global Risk | Multifactor vs. Pace High Yield | Multifactor vs. Goldman Sachs High | Multifactor vs. Pioneer High Income |
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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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