Correlation Between Us Government and Government Securities
Can any of the company-specific risk be diversified away by investing in both Us Government and Government Securities 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 Us Government and Government Securities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Us Government Securities and Government Securities Fund, you can compare the effects of market volatilities on Us Government and Government Securities 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 Us Government with a short position of Government Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Us Government and Government Securities.
Diversification Opportunities for Us Government and Government Securities
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between CGTAX and Government is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Us Government Securities and Government Securities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Securities and Us Government 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 Us Government Securities are associated (or correlated) with Government Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Securities has no effect on the direction of Us Government i.e., Us Government and Government Securities go up and down completely randomly.
Pair Corralation between Us Government and Government Securities
Assuming the 90 days horizon Us Government is expected to generate 1.39 times less return on investment than Government Securities. In addition to that, Us Government is 1.21 times more volatile than Government Securities Fund. It trades about 0.04 of its total potential returns per unit of risk. Government Securities Fund is currently generating about 0.07 per unit of volatility. If you would invest 836.00 in Government Securities Fund on August 25, 2024 and sell it today you would earn a total of 41.00 from holding Government Securities Fund or generate 4.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Us Government Securities vs. Government Securities Fund
Performance |
| Timeline |
| Us Government Securities |
| Government Securities |
Us Government and Government Securities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Us Government and Government Securities
The main advantage of trading using opposite Us Government and Government Securities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Us Government position performs unexpectedly, Government Securities 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 Government Securities will offset losses from the drop in Government Securities' long position.| Us Government vs. Government Securities Fund | Us Government vs. John Hancock Government | Us Government vs. Short Term Government Fund | Us Government vs. Us Government Securities |
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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 Transaction History module to view history of all your transactions and understand their impact on performance.
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