Correlation Between Consumer Services and Us Government
Can any of the company-specific risk be diversified away by investing in both Consumer Services and Us 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 Consumer Services and Us Government into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Consumer Services Ultrasector and Us Government Plus, you can compare the effects of market volatilities on Consumer Services and Us 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 Consumer Services with a short position of Us Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Services and Us Government.
Diversification Opportunities for Consumer Services and Us Government
-0.75 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Consumer and GVPSX is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Services Ultrasector and Us Government Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Government Plus and Consumer Services 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 Consumer Services Ultrasector are associated (or correlated) with Us Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Government Plus has no effect on the direction of Consumer Services i.e., Consumer Services and Us Government go up and down completely randomly.
Pair Corralation between Consumer Services and Us Government
Assuming the 90 days horizon Consumer Services Ultrasector is expected to generate 1.52 times more return on investment than Us Government. However, Consumer Services is 1.52 times more volatile than Us Government Plus. It trades about 0.08 of its potential returns per unit of risk. Us Government Plus is currently generating about -0.01 per unit of risk. If you would invest 4,182 in Consumer Services Ultrasector on August 27, 2024 and sell it today you would earn a total of 1,526 from holding Consumer Services Ultrasector or generate 36.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Consumer Services Ultrasector vs. Us Government Plus
Performance |
| Timeline |
| Consumer Services |
| Us Government Plus |
Consumer Services and Us Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Consumer Services and Us Government
The main advantage of trading using opposite Consumer Services and Us Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consumer Services position performs unexpectedly, Us 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 Us Government will offset losses from the drop in Us Government's long position.The idea behind Consumer Services Ultrasector and Us Government Plus 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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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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