Correlation Between Versatile Bond and Selected American

Can any of the company-specific risk be diversified away by investing in both Versatile Bond and Selected American 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 Selected American 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 Selected American Shares, you can compare the effects of market volatilities on Versatile Bond and Selected American 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 Selected American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Versatile Bond and Selected American.

Diversification Opportunities for Versatile Bond and Selected American

0.82

Correlation Coefficient

Versatile Bond  Selected American

Very poor diversification

The 3 months correlation between Versatile and Selected is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Versatile Bond Portfolio and Selected American Shares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Selected American Shares 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 Selected American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Selected American Shares has no effect on the direction of Versatile Bond i.e., Versatile Bond and Selected American go up and down completely randomly.

Pair Corralation between Versatile Bond and Selected American

Assuming the 90 days horizon Versatile Bond Portfolio is expected to generate 0.11 times more return on investment than Selected American. However, Versatile Bond Portfolio is 8.75 times less risky than Selected American. It trades about 0.48 of its potential returns per unit of risk. Selected American Shares is currently generating about 0.02 per unit of risk. If you would invest  6,594  in Versatile Bond Portfolio on May 24, 2025 and sell it today you would earn a total of  66.00  from holding Versatile Bond Portfolio or generate 1.0% return on investment over 90 days.

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

Versatile Bond Portfolio  vs.  Selected American Shares

Versatile Bond Portfolio

Risk-Adjusted Performance

High

Compared to the overall equity markets, risk-adjusted returns on investments in Versatile Bond Portfolio are ranked lower than 37 (%) 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.

Selected American Shares

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Selected American Shares are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Selected American may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Versatile Bond and Selected American

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

The idea behind Versatile Bond Portfolio and Selected American Shares 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.