Correlation Between Limited Duration and Bond Fund

Can any of the company-specific risk be diversified away by investing in both Limited Duration and Bond Fund 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 Limited Duration and Bond Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Limited Duration Fund and Bond Fund Institutional, you can compare the effects of market volatilities on Limited Duration and Bond Fund 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 Limited Duration with a short position of Bond Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Limited Duration and Bond Fund.

Diversification Opportunities for Limited Duration and Bond Fund

0.92

Correlation Coefficient

Limited Duration  Bond Fund

Almost no diversification

The 3 months correlation between Limited and Bond is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Limited Duration Fund and Bond Fund Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bond Fund Institutional and Limited Duration 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 Limited Duration Fund are associated (or correlated) with Bond Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bond Fund Institutional has no effect on the direction of Limited Duration i.e., Limited Duration and Bond Fund go up and down completely randomly.

Pair Corralation between Limited Duration and Bond Fund

Assuming the 90 days horizon Limited Duration Fund is expected to generate 0.45 times more return on investment than Bond Fund. However, Limited Duration Fund is 2.22 times less risky than Bond Fund. It trades about -0.04 of its potential returns per unit of risk. Bond Fund Institutional is currently generating about -0.12 per unit of risk. If you would invest  932.00  in Limited Duration Fund on September 13, 2024 and sell it today you would lose (3.00) from holding Limited Duration Fund or give up 0.32% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Limited Duration Fund  vs.  Bond Fund Institutional

Limited Duration

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Limited Duration Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Limited Duration is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Bond Fund Institutional

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bond Fund Institutional has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Bond Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Limited Duration and Bond Fund

The main advantage of trading using opposite Limited Duration and Bond Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Limited Duration position performs unexpectedly, Bond Fund 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 Bond Fund will offset losses from the drop in Bond Fund's long position.

The idea behind Limited Duration Fund and Bond Fund Institutional 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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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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.