Correlation Between Ultra Short and E Fixed

Can any of the company-specific risk be diversified away by investing in both Ultra Short and E Fixed 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 Ultra Short and E Fixed into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ultra Short Term Bond and The E Fixed, you can compare the effects of market volatilities on Ultra Short and E Fixed 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 Ultra Short with a short position of E Fixed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultra Short and E Fixed.

Diversification Opportunities for Ultra Short and E Fixed

-0.6

Correlation Coefficient

Ultra Short  E Fixed

Excellent diversification

The 3 months correlation between Ultra and HCIIX is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Short Term Bond and The E Fixed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E Fixed and Ultra Short 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 Ultra Short Term Bond are associated (or correlated) with E Fixed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E Fixed has no effect on the direction of Ultra Short i.e., Ultra Short and E Fixed go up and down completely randomly.

Pair Corralation between Ultra Short and E Fixed

Assuming the 90 days horizon Ultra Short Term Bond is expected to generate 0.33 times more return on investment than E Fixed. However, Ultra Short Term Bond is 2.99 times less risky than E Fixed. It trades about 0.21 of its potential returns per unit of risk. The E Fixed is currently generating about 0.02 per unit of risk. If you would invest  898.00  in Ultra Short Term Bond on September 29, 2024 and sell it today you would earn a total of  109.00  from holding Ultra Short Term Bond or generate 12.14% return on investment over 90 days.

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

Ultra Short Term Bond  vs.  The E Fixed

Ultra Short Term

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Short Term Bond are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Ultra Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

E Fixed

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ultra Short and E Fixed

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

The idea behind Ultra Short Term Bond and The E Fixed 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.