Correlation Between Global Bond and Real Return

Can any of the company-specific risk be diversified away by investing in both Global Bond and Real Return 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 Real Return 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 Real Return Asset, you can compare the effects of market volatilities on Global Bond and Real Return 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 Real Return. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Bond and Real Return.

Diversification Opportunities for Global Bond and Real Return

0.67

Correlation Coefficient

Global Bond  Real Return

Poor diversification

The 3 months correlation between Global and Real is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Global Bond Fund and Real Return Asset in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Return Asset 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 Real Return. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Real Return Asset has no effect on the direction of Global Bond i.e., Global Bond and Real Return go up and down completely randomly.

Pair Corralation between Global Bond and Real Return

Assuming the 90 days horizon Global Bond Fund is expected to generate 0.21 times more return on investment than Real Return. However, Global Bond Fund is 4.81 times less risky than Real Return. It trades about -0.03 of its potential returns per unit of risk. Real Return Asset is currently generating about -0.17 per unit of risk. If you would invest  963.00  in Global Bond Fund on September 16, 2024 and sell it today you would lose (3.00) from holding Global Bond Fund or give up 0.31% of portfolio value over 90 days.

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

Global Bond Fund  vs.  Real Return Asset

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 forward indicators, Global Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Real Return Asset

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Real Return Asset has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Global Bond and Real Return

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

The idea behind Global Bond Fund and Real Return Asset 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.

Check out your portfolio center.

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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.