Correlation Between Corporate Bond and Global Strategist

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

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

Diversification Opportunities for Corporate Bond and Global Strategist

0.74

Correlation Coefficient

Corporate Bond  Global Strategist

Poor diversification

The 3 months correlation between Corporate and Global is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Corporate Bond Portfolio and Global Strategist Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Strategist and Corporate 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 Corporate Bond Portfolio are associated (or correlated) with Global Strategist. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Strategist has no effect on the direction of Corporate Bond i.e., Corporate Bond and Global Strategist go up and down completely randomly.

Pair Corralation between Corporate Bond and Global Strategist

Assuming the 90 days horizon Corporate Bond Portfolio is expected to under-perform the Global Strategist. But the mutual fund apears to be less risky and, when comparing its historical volatility, Corporate Bond Portfolio is 1.21 times less risky than Global Strategist. The mutual fund trades about -0.14 of its potential returns per unit of risk. The Global Strategist Portfolio is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,737  in Global Strategist Portfolio on September 16, 2024 and sell it today you would lose (21.00) from holding Global Strategist Portfolio or give up 1.21% of portfolio value over 90 days.

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

Corporate Bond Portfolio  vs.  Global Strategist Portfolio

Corporate Bond Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

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

Global Strategist

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Corporate Bond and Global Strategist

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

The idea behind Corporate Bond Portfolio and Global Strategist Portfolio 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.