Correlation Between Income Fund and Short-term Bond
Can any of the company-specific risk be diversified away by investing in both Income Fund and Short-term 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 Income Fund and Short-term Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Income Fund Income and Short Term Bond Fund, you can compare the effects of market volatilities on Income Fund and Short-term 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 Income Fund with a short position of Short-term Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Fund and Short-term Bond.
Diversification Opportunities for Income Fund and Short-term Bond
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Income and Short-term is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Income Fund Income and Short Term Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Bond and Income Fund 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 Income Fund Income are associated (or correlated) with Short-term Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Bond has no effect on the direction of Income Fund i.e., Income Fund and Short-term Bond go up and down completely randomly.
Pair Corralation between Income Fund and Short-term Bond
Assuming the 90 days horizon Income Fund Income is expected to generate 2.63 times more return on investment than Short-term Bond. However, Income Fund is 2.63 times more volatile than Short Term Bond Fund. It trades about 0.05 of its potential returns per unit of risk. Short Term Bond Fund is currently generating about 0.12 per unit of risk. If you would invest 1,153 in Income Fund Income on August 28, 2024 and sell it today you would earn a total of 4.00 from holding Income Fund Income or generate 0.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Income Fund Income vs. Short Term Bond Fund
Performance |
| Timeline |
| Income Fund Income |
| Short Term Bond |
Income Fund and Short-term Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Income Fund and Short-term Bond
The main advantage of trading using opposite Income Fund and Short-term Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Income Fund position performs unexpectedly, Short-term 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 Short-term Bond will offset losses from the drop in Short-term Bond's long position.| Income Fund vs. Capital Growth Fund | Income Fund vs. Emerging Markets Fund | Income Fund vs. High Income Fund | Income Fund vs. International Fund International |
| Short-term Bond vs. Capital Growth Fund | Short-term Bond vs. Emerging Markets Fund | Short-term Bond vs. High Income Fund | Short-term Bond vs. International Fund International |
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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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