Correlation Between Extended Market and Diversified Bond
Can any of the company-specific risk be diversified away by investing in both Extended Market and Diversified 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 Extended Market and Diversified Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Extended Market Index and Diversified Bond Fund, you can compare the effects of market volatilities on Extended Market and Diversified 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 Extended Market with a short position of Diversified Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Extended Market and Diversified Bond.
Diversification Opportunities for Extended Market and Diversified Bond
-0.57 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Extended and Diversified is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Extended Market Index and Diversified Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Bond and Extended Market 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 Extended Market Index are associated (or correlated) with Diversified Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Bond has no effect on the direction of Extended Market i.e., Extended Market and Diversified Bond go up and down completely randomly.
Pair Corralation between Extended Market and Diversified Bond
Assuming the 90 days horizon Extended Market Index is expected to generate 2.63 times more return on investment than Diversified Bond. However, Extended Market is 2.63 times more volatile than Diversified Bond Fund. It trades about 0.07 of its potential returns per unit of risk. Diversified Bond Fund is currently generating about 0.03 per unit of risk. If you would invest 1,699 in Extended Market Index on September 14, 2024 and sell it today you would earn a total of 761.00 from holding Extended Market Index or generate 44.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Extended Market Index vs. Diversified Bond Fund
Performance |
| Timeline |
| Extended Market Index |
| Diversified Bond |
Extended Market and Diversified Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Extended Market and Diversified Bond
The main advantage of trading using opposite Extended Market and Diversified Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Extended Market position performs unexpectedly, Diversified 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 Diversified Bond will offset losses from the drop in Diversified Bond's long position.| Extended Market vs. Income Fund Income | Extended Market vs. Usaa Nasdaq 100 | Extended Market vs. Victory Diversified Stock | Extended Market vs. Intermediate Term Bond Fund |
| Diversified Bond vs. Mid Cap Value | Diversified Bond vs. Equity Growth Fund | Diversified Bond vs. Income Growth Fund | Diversified Bond vs. Emerging Markets Fund |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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