Correlation Between Multisector Bond and Equity Income

Can any of the company-specific risk be diversified away by investing in both Multisector Bond and Equity Income 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 Multisector Bond and Equity Income into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Multisector Bond Sma and Equity Income Portfolio, you can compare the effects of market volatilities on Multisector Bond and Equity Income 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 Multisector Bond with a short position of Equity Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Multisector Bond and Equity Income.

Diversification Opportunities for Multisector Bond and Equity Income

0.91

Correlation Coefficient

Multisector Bond  Equity Income

Almost no diversification

The 3 months correlation between Multisector and Equity is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Multisector Bond Sma and Equity Income Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income Portfolio and Multisector 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 Multisector Bond Sma are associated (or correlated) with Equity Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income Portfolio has no effect on the direction of Multisector Bond i.e., Multisector Bond and Equity Income go up and down completely randomly.

Pair Corralation between Multisector Bond and Equity Income

Assuming the 90 days horizon Multisector Bond is expected to generate 1.99 times less return on investment than Equity Income. But when comparing it to its historical volatility, Multisector Bond Sma is 2.61 times less risky than Equity Income. It trades about 0.23 of its potential returns per unit of risk. Equity Income Portfolio is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,480  in Equity Income Portfolio on May 25, 2025 and sell it today you would earn a total of  104.00  from holding Equity Income Portfolio or generate 7.03% return on investment over 90 days.

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

Multisector Bond Sma  vs.  Equity Income Portfolio

Multisector Bond Sma

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Multisector Bond Sma are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Multisector Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Equity Income Portfolio

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Income Portfolio are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Equity Income may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Multisector Bond and Equity Income

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

The idea behind Multisector Bond Sma and Equity Income Portfolio 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.