Correlation Between Floating Rate and Multimanager Lifestyle

Can any of the company-specific risk be diversified away by investing in both Floating Rate and Multimanager Lifestyle 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 Floating Rate and Multimanager Lifestyle into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Floating Rate Income and Multimanager Lifestyle Moderate, you can compare the effects of market volatilities on Floating Rate and Multimanager Lifestyle 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 Floating Rate with a short position of Multimanager Lifestyle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Floating Rate and Multimanager Lifestyle.

Diversification Opportunities for Floating Rate and Multimanager Lifestyle

0.71

Correlation Coefficient

Floating Rate  Multimanager Lifestyle

Poor diversification

The 3 months correlation between Floating and Multimanager is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Floating Rate Income and Multimanager Lifestyle Moderat in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Multimanager Lifestyle and Floating Rate 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 Floating Rate Income are associated (or correlated) with Multimanager Lifestyle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Multimanager Lifestyle has no effect on the direction of Floating Rate i.e., Floating Rate and Multimanager Lifestyle go up and down completely randomly.

Pair Corralation between Floating Rate and Multimanager Lifestyle

Assuming the 90 days horizon Floating Rate is expected to generate 2.9 times less return on investment than Multimanager Lifestyle. But when comparing it to its historical volatility, Floating Rate Income is 2.45 times less risky than Multimanager Lifestyle. It trades about 0.2 of its potential returns per unit of risk. Multimanager Lifestyle Moderate is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,231  in Multimanager Lifestyle Moderate on May 15, 2025 and sell it today you would earn a total of  53.00  from holding Multimanager Lifestyle Moderate or generate 4.31% return on investment over 90 days.

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

Floating Rate Income  vs.  Multimanager Lifestyle Moderat

Floating Rate Income

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Floating Rate Income are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Floating Rate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Multimanager Lifestyle

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Multimanager Lifestyle Moderate are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Multimanager Lifestyle is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Floating Rate and Multimanager Lifestyle

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

The idea behind Floating Rate Income and Multimanager Lifestyle Moderate 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.