Correlation Between Global Bond and Value Equity

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

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

Diversification Opportunities for Global Bond and Value Equity

-0.7

Correlation Coefficient

Global Bond  Value Equity

Excellent diversification

The 3 months correlation between Global and Value is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Global Bond Fund and Value Equity Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Equity Institu and Global 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 Global Bond Fund are associated (or correlated) with Value Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Equity Institu has no effect on the direction of Global Bond i.e., Global Bond and Value Equity go up and down completely randomly.

Pair Corralation between Global Bond and Value Equity

Assuming the 90 days horizon Global Bond Fund is expected to under-perform the Value Equity. But the mutual fund apears to be less risky and, when comparing its historical volatility, Global Bond Fund is 2.56 times less risky than Value Equity. The mutual fund trades about -0.06 of its potential returns per unit of risk. The Value Equity Institutional is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,017  in Value Equity Institutional on August 31, 2024 and sell it today you would earn a total of  163.00  from holding Value Equity Institutional or generate 8.08% return on investment over 90 days.

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

Global Bond Fund  vs.  Value Equity Institutional

Global Bond Fund

Risk-Adjusted Performance

0 of 100

Very Weak

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

Value Equity Institu

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Value Equity Institutional are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Value Equity may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Global Bond and Value Equity

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

The idea behind Global Bond Fund and Value Equity 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.