Correlation Between California Bond and Hunter Small
Can any of the company-specific risk be diversified away by investing in both California Bond and Hunter Small 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 California Bond and Hunter Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between California Bond Fund and Hunter Small Cap, you can compare the effects of market volatilities on California Bond and Hunter Small 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 California Bond with a short position of Hunter Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of California Bond and Hunter Small.
Diversification Opportunities for California Bond and Hunter Small
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between California and Hunter is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding California Bond Fund and Hunter Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hunter Small Cap and California Bond 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 California Bond Fund are associated (or correlated) with Hunter Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hunter Small Cap has no effect on the direction of California Bond i.e., California Bond and Hunter Small go up and down completely randomly.
Pair Corralation between California Bond and Hunter Small
Assuming the 90 days horizon California Bond Fund is expected to under-perform the Hunter Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, California Bond Fund is 3.28 times less risky than Hunter Small. The mutual fund trades about -0.05 of its potential returns per unit of risk. The Hunter Small Cap is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 1,242 in Hunter Small Cap on November 7, 2024 and sell it today you would earn a total of 32.00 from holding Hunter Small Cap or generate 2.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.0% |
| Values | Daily Returns |
California Bond Fund vs. Hunter Small Cap
Performance |
| Timeline |
| California Bond |
| Hunter Small Cap |
California Bond and Hunter Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with California Bond and Hunter Small
The main advantage of trading using opposite California Bond and Hunter Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California Bond position performs unexpectedly, Hunter Small 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 Hunter Small will offset losses from the drop in Hunter Small's long position.The idea behind California Bond Fund and Hunter Small Cap pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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