Correlation Between Multi Index and Floating Rate

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

By analyzing existing cross correlation between Multi Index 2020 Lifetime and Floating Rate Income, you can compare the effects of market volatilities on Multi Index and Floating Rate 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 Multi Index with a short position of Floating Rate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Multi Index and Floating Rate.

Diversification Opportunities for Multi Index and Floating Rate

0.96

Correlation Coefficient

Multi Index  Floating Rate

Almost no diversification

The 3 months correlation between Multi and Floating is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Multi Index 2020 Lifetime and Floating Rate Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Floating Rate Income and Multi Index 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 Multi Index 2020 Lifetime are associated (or correlated) with Floating Rate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Floating Rate Income has no effect on the direction of Multi Index i.e., Multi Index and Floating Rate go up and down completely randomly.

Pair Corralation between Multi Index and Floating Rate

Assuming the 90 days horizon Multi Index 2020 Lifetime is expected to generate 1.96 times more return on investment than Floating Rate. However, Multi Index is 1.96 times more volatile than Floating Rate Income. It trades about 0.29 of its potential returns per unit of risk. Floating Rate Income is currently generating about 0.35 per unit of risk. If you would invest  1,087  in Multi Index 2020 Lifetime on April 27, 2025 and sell it today you would earn a total of  63.00  from holding Multi Index 2020 Lifetime or generate 5.8% return on investment over 90 days.

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

Multi Index 2020 Lifetime  vs.  Floating Rate Income

Multi Index 2020

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Multi Index 2020 Lifetime are ranked lower than 23 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Multi Index is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Floating Rate Income

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Floating Rate Income are ranked lower than 27 (%) 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.

Pair Trading with Multi Index and Floating Rate

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

The idea behind Multi Index 2020 Lifetime and Floating Rate Income 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.