Correlation Between Equity Growth and Short-term Government
Can any of the company-specific risk be diversified away by investing in both Equity Growth and Short-term Government 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 Equity Growth and Short-term Government into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Equity Growth Fund and Short Term Government Fund, you can compare the effects of market volatilities on Equity Growth and Short-term Government 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 Equity Growth with a short position of Short-term Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Growth and Short-term Government.
Diversification Opportunities for Equity Growth and Short-term Government
-0.63 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Equity and Short-term is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Equity Growth Fund and Short Term Government Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Government and Equity Growth 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 Equity Growth Fund are associated (or correlated) with Short-term Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Government has no effect on the direction of Equity Growth i.e., Equity Growth and Short-term Government go up and down completely randomly.
Pair Corralation between Equity Growth and Short-term Government
Assuming the 90 days horizon Equity Growth Fund is expected to generate 269.2 times more return on investment than Short-term Government. However, Equity Growth is 269.2 times more volatile than Short Term Government Fund. It trades about 0.04 of its potential returns per unit of risk. Short Term Government Fund is currently generating about 0.05 per unit of risk. If you would invest 2,219 in Equity Growth Fund on August 30, 2024 and sell it today you would earn a total of 1,217 from holding Equity Growth Fund or generate 54.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Equity Growth Fund vs. Short Term Government Fund
Performance |
| Timeline |
| Equity Growth |
| Short Term Government |
Equity Growth and Short-term Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Equity Growth and Short-term Government
The main advantage of trading using opposite Equity Growth and Short-term Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Growth position performs unexpectedly, Short-term Government 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-term Government will offset losses from the drop in Short-term Government's long position.| Equity Growth vs. Vanguard Total Stock | Equity Growth vs. Vanguard 500 Index | Equity Growth vs. Vanguard Total Stock | Equity Growth vs. Vanguard Total Stock |
| Short-term Government vs. Vanguard Short Term Tax Exempt | Short-term Government vs. HUMANA INC | Short-term Government vs. Aquagold International | Short-term Government vs. Barloworld Ltd ADR |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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