Correlation Between Diversified Bond and Ginnie Mae

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

By analyzing existing cross correlation between Diversified Bond Fund and Ginnie Mae Fund, you can compare the effects of market volatilities on Diversified Bond and Ginnie Mae 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 Diversified Bond with a short position of Ginnie Mae. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diversified Bond and Ginnie Mae.

Diversification Opportunities for Diversified Bond and Ginnie Mae

0.99

Correlation Coefficient

Diversified Bond  Ginnie Mae

No risk reduction

The 3 months correlation between Diversified and Ginnie is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Bond Fund and Ginnie Mae Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ginnie Mae Fund and Diversified 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 Diversified Bond Fund are associated (or correlated) with Ginnie Mae. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ginnie Mae Fund has no effect on the direction of Diversified Bond i.e., Diversified Bond and Ginnie Mae go up and down completely randomly.

Pair Corralation between Diversified Bond and Ginnie Mae

Assuming the 90 days horizon Diversified Bond is expected to generate 1.14 times less return on investment than Ginnie Mae. But when comparing it to its historical volatility, Diversified Bond Fund is 1.12 times less risky than Ginnie Mae. It trades about 0.09 of its potential returns per unit of risk. Ginnie Mae Fund is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  817.00  in Ginnie Mae Fund on January 28, 2024 and sell it today you would earn a total of  45.00  from holding Ginnie Mae Fund or generate 5.51% return on investment over 90 days.

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

Diversified Bond Fund  vs.  Ginnie Mae Fund

Diversified Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diversified Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Diversified Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ginnie Mae Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ginnie Mae Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Ginnie Mae is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Diversified Bond and Ginnie Mae

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

The idea behind Diversified Bond Fund and Ginnie Mae 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.