Correlation Between Inflation Protection and Strategic Asset

Can any of the company-specific risk be diversified away by investing in both Inflation Protection and Strategic Asset 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 Inflation Protection and Strategic Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Inflation Protection Fund and Strategic Asset Management, you can compare the effects of market volatilities on Inflation Protection and Strategic Asset 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 Inflation Protection with a short position of Strategic Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inflation Protection and Strategic Asset.

Diversification Opportunities for Inflation Protection and Strategic Asset

-0.32

Correlation Coefficient

Inflation Protection  Strategic Asset

Very good diversification

The 3 months correlation between Inflation and Strategic is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Inflation Protection Fund and Strategic Asset Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Asset Mana and Inflation Protection 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 Inflation Protection Fund are associated (or correlated) with Strategic Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategic Asset Mana has no effect on the direction of Inflation Protection i.e., Inflation Protection and Strategic Asset go up and down completely randomly.

Pair Corralation between Inflation Protection and Strategic Asset

Assuming the 90 days horizon Inflation Protection Fund is expected to under-perform the Strategic Asset. But the mutual fund apears to be less risky and, when comparing its historical volatility, Inflation Protection Fund is 1.63 times less risky than Strategic Asset. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Strategic Asset Management is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,680  in Strategic Asset Management on September 4, 2024 and sell it today you would earn a total of  82.00  from holding Strategic Asset Management or generate 4.88% return on investment over 90 days.

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

Inflation Protection Fund  vs.  Strategic Asset Management

Inflation Protection

Risk-Adjusted Performance

0 of 100

Very Weak

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

Strategic Asset Mana

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Strategic Asset Management are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Strategic Asset is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Inflation Protection and Strategic Asset

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

The idea behind Inflation Protection Fund and Strategic Asset Management 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .