Correlation Between Versatile Bond and Basic Materials
Can any of the company-specific risk be diversified away by investing in both Versatile Bond and Basic Materials 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 Versatile Bond and Basic Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Versatile Bond Portfolio and Basic Materials Fund, you can compare the effects of market volatilities on Versatile Bond and Basic Materials 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 Versatile Bond with a short position of Basic Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Versatile Bond and Basic Materials.
Diversification Opportunities for Versatile Bond and Basic Materials
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Versatile and Basic is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Versatile Bond Portfolio and Basic Materials Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Materials and Versatile 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 Versatile Bond Portfolio are associated (or correlated) with Basic Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Materials has no effect on the direction of Versatile Bond i.e., Versatile Bond and Basic Materials go up and down completely randomly.
Pair Corralation between Versatile Bond and Basic Materials
Assuming the 90 days horizon Versatile Bond is expected to generate 3.16 times less return on investment than Basic Materials. But when comparing it to its historical volatility, Versatile Bond Portfolio is 10.47 times less risky than Basic Materials. It trades about 0.49 of its potential returns per unit of risk. Basic Materials Fund is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 6,695 in Basic Materials Fund on May 23, 2025 and sell it today you would earn a total of 617.00 from holding Basic Materials Fund or generate 9.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Versatile Bond Portfolio vs. Basic Materials Fund
Performance |
| Timeline |
| Versatile Bond Portfolio |
| Basic Materials |
Versatile Bond and Basic Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Versatile Bond and Basic Materials
The main advantage of trading using opposite Versatile Bond and Basic Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Versatile Bond position performs unexpectedly, Basic Materials 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 Basic Materials will offset losses from the drop in Basic Materials' long position.| Versatile Bond vs. Short Term Treasury Portfolio | Versatile Bond vs. Aggressive Growth Portfolio | Versatile Bond vs. Permanent Portfolio Class | Versatile Bond vs. Thompson Bond Fund |
| Basic Materials vs. Fidelity Flex Servative | Basic Materials vs. Western Asset Short | Basic Materials vs. Leader Short Term Bond | Basic Materials vs. Dreyfus Short Intermediate |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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