Correlation Between Multisector Bond and Madison Moderate

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

By analyzing existing cross correlation between Multisector Bond Sma and Madison Moderate Allocation, you can compare the effects of market volatilities on Multisector Bond and Madison Moderate 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 Multisector Bond with a short position of Madison Moderate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Multisector Bond and Madison Moderate.

Diversification Opportunities for Multisector Bond and Madison Moderate

0.76

Correlation Coefficient

Multisector Bond  Madison Moderate

Poor diversification

The 3 months correlation between Multisector and Madison is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Multisector Bond Sma and Madison Moderate Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Moderate All and Multisector 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 Multisector Bond Sma are associated (or correlated) with Madison Moderate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Moderate All has no effect on the direction of Multisector Bond i.e., Multisector Bond and Madison Moderate go up and down completely randomly.

Pair Corralation between Multisector Bond and Madison Moderate

Assuming the 90 days horizon Multisector Bond is expected to generate 3.09 times less return on investment than Madison Moderate. But when comparing it to its historical volatility, Multisector Bond Sma is 1.67 times less risky than Madison Moderate. It trades about 0.11 of its potential returns per unit of risk. Madison Moderate Allocation is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,071  in Madison Moderate Allocation on March 1, 2025 and sell it today you would earn a total of  27.00  from holding Madison Moderate Allocation or generate 2.52% return on investment over 90 days.

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

Multisector Bond Sma  vs.  Madison Moderate Allocation

Multisector Bond Sma

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Multisector Bond Sma are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Multisector Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Madison Moderate All

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Multisector Bond and Madison Moderate

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

The idea behind Multisector Bond Sma and Madison Moderate Allocation 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.