Correlation Between Versatile Bond and Short Duration

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

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

Diversification Opportunities for Versatile Bond and Short Duration

0.94

Correlation Coefficient

Versatile Bond  Short Duration

Almost no diversification

The 3 months correlation between Versatile and Short is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Versatile Bond Portfolio and Short Duration Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Duration Municipal and Versatile 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 Versatile Bond Portfolio are associated (or correlated) with Short Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Duration Municipal has no effect on the direction of Versatile Bond i.e., Versatile Bond and Short Duration go up and down completely randomly.

Pair Corralation between Versatile Bond and Short Duration

Assuming the 90 days horizon Versatile Bond Portfolio is expected to generate 1.35 times more return on investment than Short Duration. However, Versatile Bond is 1.35 times more volatile than Short Duration Municipal. It trades about 0.39 of its potential returns per unit of risk. Short Duration Municipal is currently generating about 0.32 per unit of risk. If you would invest  6,465  in Versatile Bond Portfolio on May 11, 2025 and sell it today you would earn a total of  168.00  from holding Versatile Bond Portfolio or generate 2.6% return on investment over 90 days.

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

Versatile Bond Portfolio  vs.  Short Duration Municipal

Versatile Bond Portfolio

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Versatile Bond Portfolio are ranked lower than 30 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Versatile Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Short Duration Municipal

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Short Duration Municipal are ranked lower than 25 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Short 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 Versatile Bond and Short Duration

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

The idea behind Versatile Bond Portfolio and Short Duration Municipal 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.