Correlation Between Overlay Shares and Low-duration Bond

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Can any of the company-specific risk be diversified away by investing in both Overlay Shares and Low-duration Bond 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 Overlay Shares and Low-duration Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Overlay Shares Municipal and Low Duration Bond Investor, you can compare the effects of market volatilities on Overlay Shares and Low-duration Bond 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 Overlay Shares with a short position of Low-duration Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Overlay Shares and Low-duration Bond.

Diversification Opportunities for Overlay Shares and Low-duration Bond

0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between Overlay and Low-duration is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Overlay Shares Municipal and LOW-DURATION BOND INVESTOR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Low-duration Bond and Overlay Shares 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 Overlay Shares Municipal are associated (or correlated) with Low-duration Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Low-duration Bond has no effect on the direction of Overlay Shares i.e., Overlay Shares and Low-duration Bond go up and down completely randomly.

Pair Corralation between Overlay Shares and Low-duration Bond

Considering the 90-day investment horizon Overlay Shares Municipal is expected to generate 2.54 times more return on investment than Low-duration Bond. However, Overlay Shares is 2.54 times more volatile than Low Duration Bond Investor. It trades about 0.02 of its potential returns per unit of risk. Low Duration Bond Investor is currently generating about 0.06 per unit of risk. If you would invest  2,154  in Overlay Shares Municipal on December 29, 2023 and sell it today you would earn a total of  94.00  from holding Overlay Shares Municipal or generate 4.36% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.8%
ValuesDaily Returns

Overlay Shares Municipal  vs.  LOW-DURATION BOND INVESTOR

 Performance 
       Timeline  
Overlay Shares Municipal 

Risk-Adjusted Performance

6 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Overlay Shares Municipal are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Overlay Shares is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.
Low-duration Bond 

Risk-Adjusted Performance

7 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Low Duration Bond Investor are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Low-duration Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Overlay Shares and Low-duration Bond Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Overlay Shares and Low-duration Bond

The main advantage of trading using opposite Overlay Shares and Low-duration Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Overlay Shares position performs unexpectedly, Low-duration Bond 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 Low-duration Bond will offset losses from the drop in Low-duration Bond's long position.
The idea behind Overlay Shares Municipal and Low Duration Bond Investor 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.

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