Correlation Between Ultra-short Fixed and Intermediate-term

Can any of the company-specific risk be diversified away by investing in both Ultra-short Fixed and Intermediate-term 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 Ultra-short Fixed and Intermediate-term into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ultra Short Fixed Income and Intermediate Term Bond Fund, you can compare the effects of market volatilities on Ultra-short Fixed and Intermediate-term 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 Ultra-short Fixed with a short position of Intermediate-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultra-short Fixed and Intermediate-term.

Diversification Opportunities for Ultra-short Fixed and Intermediate-term

0.85

Correlation Coefficient

Ultra-short Fixed  Intermediate-term

Very poor diversification

The 3 months correlation between Ultra-short and Intermediate-term is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Short Fixed Income and Intermediate Term Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Term Bond and Ultra-short Fixed 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 Ultra Short Fixed Income are associated (or correlated) with Intermediate-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Term Bond has no effect on the direction of Ultra-short Fixed i.e., Ultra-short Fixed and Intermediate-term go up and down completely randomly.

Pair Corralation between Ultra-short Fixed and Intermediate-term

Assuming the 90 days horizon Ultra-short Fixed is expected to generate 1.78 times less return on investment than Intermediate-term. But when comparing it to its historical volatility, Ultra Short Fixed Income is 2.47 times less risky than Intermediate-term. It trades about 0.23 of its potential returns per unit of risk. Intermediate Term Bond Fund is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  911.00  in Intermediate Term Bond Fund on August 15, 2025 and sell it today you would earn a total of  21.00  from holding Intermediate Term Bond Fund or generate 2.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Ultra Short Fixed Income  vs.  Intermediate Term Bond Fund

Ultra Short Fixed

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Short Fixed Income are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Ultra-short Fixed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Intermediate Term Bond

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Intermediate Term Bond Fund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Intermediate-term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ultra-short Fixed and Intermediate-term

The main advantage of trading using opposite Ultra-short Fixed and Intermediate-term positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ultra-short Fixed position performs unexpectedly, Intermediate-term 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 Intermediate-term will offset losses from the drop in Intermediate-term's long position.

The idea behind Ultra Short Fixed Income and Intermediate Term Bond 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.

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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.