Correlation Between Defensive Market and Medium-duration Bond

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

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

Diversification Opportunities for Defensive Market and Medium-duration Bond

-0.62

Correlation Coefficient

Defensive Market  Medium-duration Bond

Excellent diversification

The 3 months correlation between Defensive and Medium-duration is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Defensive Market Strategies and Medium Duration Bond Instituti in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medium Duration Bond and Defensive 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 Defensive Market Strategies are associated (or correlated) with Medium-duration Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medium Duration Bond has no effect on the direction of Defensive Market i.e., Defensive Market and Medium-duration Bond go up and down completely randomly.

Pair Corralation between Defensive Market and Medium-duration Bond

Assuming the 90 days horizon Defensive Market Strategies is expected to generate 1.18 times more return on investment than Medium-duration Bond. However, Defensive Market is 1.18 times more volatile than Medium Duration Bond Institutional. It trades about 0.41 of its potential returns per unit of risk. Medium Duration Bond Institutional is currently generating about 0.09 per unit of risk. If you would invest  1,248  in Defensive Market Strategies on September 5, 2024 and sell it today you would earn a total of  46.00  from holding Defensive Market Strategies or generate 3.69% return on investment over 90 days.

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

Defensive Market Strategies  vs.  Medium Duration Bond Instituti

Defensive Market Str

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Defensive Market Strategies are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Defensive Market is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Medium Duration Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Defensive Market and Medium-duration Bond

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

The idea behind Defensive Market Strategies and Medium Duration Bond 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.