Correlation Between Select Equity and Short Duration
Can any of the company-specific risk be diversified away by investing in both Select Equity 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 Select Equity and Short Duration into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Select Equity Fund and Short Duration Bond, you can compare the effects of market volatilities on Select Equity 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 Select Equity with a short position of Short Duration. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Equity and Short Duration.
Diversification Opportunities for Select Equity and Short Duration
-0.48 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Select and Short is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Select 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 Select Equity 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 Select 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 Select Equity i.e., Select Equity and Short Duration go up and down completely randomly.
Pair Corralation between Select Equity and Short Duration
Assuming the 90 days horizon Select Equity Fund is expected to generate 8.96 times more return on investment than Short Duration. However, Select Equity is 8.96 times more volatile than Short Duration Bond. It trades about 0.22 of its potential returns per unit of risk. Short Duration Bond is currently generating about 0.02 per unit of risk. If you would invest 1,976 in Select Equity Fund on August 28, 2024 and sell it today you would earn a total of 85.00 from holding Select Equity Fund or generate 4.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Select Equity Fund vs. Short Duration Bond
Performance |
| Timeline |
| Select Equity |
| Short Duration Bond |
Select Equity and Short Duration Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Select Equity and Short Duration
The main advantage of trading using opposite Select Equity and Short Duration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Equity 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.| Select Equity vs. International Developed Markets | Select Equity vs. Global Real Estate | Select Equity vs. Global Real Estate | Select Equity vs. Global Real Estate |
| 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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