Correlation Between Short Term and Moderate Duration

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

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

Diversification Opportunities for Short Term and Moderate Duration

0.76

Correlation Coefficient

Short Term  Moderate Duration

Poor diversification

The 3 months correlation between Short and Moderate is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Fund C and Moderate Duration Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moderate Duration and Short Term 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 Term Fund C are associated (or correlated) with Moderate Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moderate Duration has no effect on the direction of Short Term i.e., Short Term and Moderate Duration go up and down completely randomly.

Pair Corralation between Short Term and Moderate Duration

Assuming the 90 days horizon Short Term is expected to generate 1.16 times less return on investment than Moderate Duration. But when comparing it to its historical volatility, Short Term Fund C is 3.21 times less risky than Moderate Duration. It trades about 0.21 of its potential returns per unit of risk. Moderate Duration Fund is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  927.00  in Moderate Duration Fund on May 1, 2025 and sell it today you would earn a total of  10.00  from holding Moderate Duration Fund or generate 1.08% return on investment over 90 days.

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

Short Term Fund C  vs.  Moderate Duration Fund

Short Term Fund

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Short Term Fund C are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Short Term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Moderate Duration

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Moderate Duration Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Moderate Duration 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 Term and Moderate Duration

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

The idea behind Short Term Fund C and Moderate Duration Fund 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.

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.