Correlation Between Core Plus and Value Fund

Can any of the company-specific risk be diversified away by investing in both Core Plus and Value Fund 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 Core Plus and Value Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Core Plus and Value Fund

0.6

Correlation Coefficient

Core Plus  Value Fund

Poor diversification

The 3 months correlation between Core and Value is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Core Plus Income and Value Fund Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Fund Value and Core Plus 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 Core Plus Income are associated (or correlated) with Value Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Fund Value has no effect on the direction of Core Plus i.e., Core Plus and Value Fund go up and down completely randomly.

Pair Corralation between Core Plus and Value Fund

Assuming the 90 days horizon Core Plus Income is expected to generate 0.4 times more return on investment than Value Fund. However, Core Plus Income is 2.51 times less risky than Value Fund. It trades about -0.01 of its potential returns per unit of risk. Value Fund Value is currently generating about -0.11 per unit of risk. If you would invest  951.00  in Core Plus Income on February 5, 2024 and sell it today you would lose (1.00) from holding Core Plus Income or give up 0.11% of portfolio value over 90 days.

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

Core Plus Income  vs.  Value Fund Value

Core Plus Income

Risk-Adjusted Performance

0 of 100

Very Weak

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

Value Fund Value

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Core Plus and Value Fund

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

The idea behind Core Plus Income and Value Fund Value 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.

Check out your portfolio center.

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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.