Correlation Between Diversified Bond and Global Small

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

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

Diversification Opportunities for Diversified Bond and Global Small

-0.45

Correlation Coefficient

Diversified Bond  Global Small

Very good diversification

The 3 months correlation between Diversified and Global is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Bond Fund and Global Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Small Cap and Diversified 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 Diversified Bond Fund are associated (or correlated) with Global Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Small Cap has no effect on the direction of Diversified Bond i.e., Diversified Bond and Global Small go up and down completely randomly.

Pair Corralation between Diversified Bond and Global Small

Assuming the 90 days horizon Diversified Bond is expected to generate 13.97 times less return on investment than Global Small. But when comparing it to its historical volatility, Diversified Bond Fund is 2.94 times less risky than Global Small. It trades about 0.08 of its potential returns per unit of risk. Global Small Cap is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  1,859  in Global Small Cap on September 5, 2024 and sell it today you would earn a total of  148.00  from holding Global Small Cap or generate 7.96% return on investment over 90 days.

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

Diversified Bond Fund  vs.  Global Small Cap

Diversified Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Global Small Cap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Global Small Cap are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Global Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Diversified Bond and Global Small

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

The idea behind Diversified Bond Fund and Global 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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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.