Correlation Between Diversified Bond and Income Growth
Can any of the company-specific risk be diversified away by investing in both Diversified Bond and Income Growth 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 Diversified Bond and Income Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Diversified Bond Fund and Income Growth Fund, you can compare the effects of market volatilities on Diversified Bond and Income Growth 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 Diversified Bond with a short position of Income Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diversified Bond and Income Growth.
Diversification Opportunities for Diversified Bond and Income Growth
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Diversified and Income is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Bond Fund and Income Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Income Growth and Diversified 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 Diversified Bond Fund are associated (or correlated) with Income Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Income Growth has no effect on the direction of Diversified Bond i.e., Diversified Bond and Income Growth go up and down completely randomly.
Pair Corralation between Diversified Bond and Income Growth
Assuming the 90 days horizon Diversified Bond is expected to generate 5.45 times less return on investment than Income Growth. But when comparing it to its historical volatility, Diversified Bond Fund is 2.38 times less risky than Income Growth. It trades about 0.1 of its potential returns per unit of risk. Income Growth Fund is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 3,398 in Income Growth Fund on April 23, 2025 and sell it today you would earn a total of 366.00 from holding Income Growth Fund or generate 10.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Diversified Bond Fund vs. Income Growth Fund
Performance |
| Timeline |
| Diversified Bond |
| Income Growth |
Diversified Bond and Income Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Diversified Bond and Income Growth
The main advantage of trading using opposite Diversified Bond and Income Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diversified Bond position performs unexpectedly, Income Growth 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 Income Growth will offset losses from the drop in Income Growth's long position.The idea behind Diversified Bond Fund and Income Growth Fund 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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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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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