Correlation Between Moderate Strategy and Short Duration

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

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

Diversification Opportunities for Moderate Strategy and Short Duration

0.7

Correlation Coefficient

Moderate Strategy  Short Duration

Poor diversification

The 3 months correlation between Moderate and Short is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Moderate Strategy Fund and Short Duration Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Duration Inflation and Moderate Strategy 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 Moderate Strategy Fund 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 Inflation has no effect on the direction of Moderate Strategy i.e., Moderate Strategy and Short Duration go up and down completely randomly.

Pair Corralation between Moderate Strategy and Short Duration

Assuming the 90 days horizon Moderate Strategy Fund is expected to generate 2.43 times more return on investment than Short Duration. However, Moderate Strategy is 2.43 times more volatile than Short Duration Inflation. It trades about 0.26 of its potential returns per unit of risk. Short Duration Inflation is currently generating about 0.26 per unit of risk. If you would invest  973.00  in Moderate Strategy Fund on May 25, 2025 and sell it today you would earn a total of  51.00  from holding Moderate Strategy Fund or generate 5.24% return on investment over 90 days.

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

Moderate Strategy Fund  vs.  Short Duration Inflation

Moderate Strategy

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Moderate Strategy Fund are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Moderate Strategy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Short Duration Inflation

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Short Duration Inflation are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic 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 Moderate Strategy and Short Duration

The main advantage of trading using opposite Moderate Strategy and Short Duration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Moderate Strategy 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 Moderate Strategy Fund and Short Duration Inflation 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.