Correlation Between Total Return and Domini Impact

Can any of the company-specific risk be diversified away by investing in both Total Return and Domini Impact 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 Total Return and Domini Impact into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Total Return and Domini Impact

0.99

Correlation Coefficient

Total Return  Domini Impact

No risk reduction

The 3 months correlation between Total and Domini is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Total Return Fund and Domini Impact Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Domini Impact Bond and Total Return 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 Total Return Fund are associated (or correlated) with Domini Impact. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Domini Impact Bond has no effect on the direction of Total Return i.e., Total Return and Domini Impact go up and down completely randomly.

Pair Corralation between Total Return and Domini Impact

Assuming the 90 days horizon Total Return Fund is expected to generate about the same return on investment as Domini Impact Bond. But, Total Return Fund is 1.08 times less risky than Domini Impact. It trades about 0.07 of its potential returns per unit of risk. Domini Impact Bond is currently generating about 0.06 per unit of risk. If you would invest  989.00  in Domini Impact Bond on September 3, 2024 and sell it today you would earn a total of  27.00  from holding Domini Impact Bond or generate 2.73% return on investment over 90 days.

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

Total Return Fund  vs.  Domini Impact Bond

Total Return

Risk-Adjusted Performance

0 of 100

Very Weak

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

Domini Impact Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Total Return and Domini Impact

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

The idea behind Total Return Fund and Domini Impact Bond 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.