Correlation Between Short Duration and Quantitative Longshort

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

By analyzing existing cross correlation between Short Duration Inflation and Quantitative Longshort Equity, you can compare the effects of market volatilities on Short Duration and Quantitative Longshort 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 Short Duration with a short position of Quantitative Longshort. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Duration and Quantitative Longshort.

Diversification Opportunities for Short Duration and Quantitative Longshort

0.08

Correlation Coefficient

Short Duration  Quantitative Longshort

Significant diversification

The 3 months correlation between Short and Quantitative is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Short Duration Inflation and Quantitative Longshort Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quantitative Longshort and Short Duration 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 Short Duration Inflation are associated (or correlated) with Quantitative Longshort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quantitative Longshort has no effect on the direction of Short Duration i.e., Short Duration and Quantitative Longshort go up and down completely randomly.

Pair Corralation between Short Duration and Quantitative Longshort

Assuming the 90 days horizon Short Duration is expected to generate 8.94 times less return on investment than Quantitative Longshort. But when comparing it to its historical volatility, Short Duration Inflation is 2.21 times less risky than Quantitative Longshort. It trades about 0.04 of its potential returns per unit of risk. Quantitative Longshort Equity is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,343  in Quantitative Longshort Equity on May 1, 2025 and sell it today you would earn a total of  50.00  from holding Quantitative Longshort Equity or generate 3.72% return on investment over 90 days.

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

Short Duration Inflation  vs.  Quantitative Longshort Equity

Short Duration Inflation

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Short Duration Inflation are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Short Duration is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Quantitative Longshort

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Quantitative Longshort Equity are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Quantitative Longshort is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Short Duration and Quantitative Longshort

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

The idea behind Short Duration Inflation and Quantitative Longshort Equity 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.