Correlation Between Intermediate Term and Short Duration

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

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

Diversification Opportunities for Intermediate Term and Short Duration

0.49

Correlation Coefficient

Intermediate Term  Short Duration

Very weak diversification

The 3 months correlation between Intermediate and Short is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Term Tax Free Bon 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 Intermediate 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 Intermediate Term Tax Free Bond 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 Intermediate Term i.e., Intermediate Term and Short Duration go up and down completely randomly.

Pair Corralation between Intermediate Term and Short Duration

Assuming the 90 days horizon Intermediate Term is expected to generate 140.0 times less return on investment than Short Duration. But when comparing it to its historical volatility, Intermediate Term Tax Free Bond is 1.24 times less risky than Short Duration. It trades about 0.0 of its potential returns per unit of risk. Short Duration Inflation is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,056  in Short Duration Inflation on May 1, 2025 and sell it today you would earn a total of  9.00  from holding Short Duration Inflation or generate 0.85% return on investment over 90 days.

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

Intermediate Term Tax Free Bon  vs.  Short Duration Inflation

Intermediate Term Tax

Risk-Adjusted Performance

Very Weak

Over the last 90 days Intermediate Term Tax Free Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Intermediate Term 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

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Short Duration Inflation are ranked lower than 7 (%) 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 Intermediate Term and Short Duration

The main advantage of trading using opposite Intermediate Term and Short Duration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Intermediate Term 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 Intermediate Term Tax Free Bond 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..