Correlation Between Intermediate Government and Global Core
Can any of the company-specific risk be diversified away by investing in both Intermediate Government and Global Core 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 Intermediate Government and Global Core into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Intermediate Government Bond and Global E Portfolio, you can compare the effects of market volatilities on Intermediate Government and Global Core 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 Intermediate Government with a short position of Global Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate Government and Global Core.
Diversification Opportunities for Intermediate Government and Global Core
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Intermediate and Global is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Government Bond and Global E Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global E Portfolio and Intermediate 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 Intermediate Government Bond are associated (or correlated) with Global Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global E Portfolio has no effect on the direction of Intermediate Government i.e., Intermediate Government and Global Core go up and down completely randomly.
Pair Corralation between Intermediate Government and Global Core
Assuming the 90 days horizon Intermediate Government is expected to generate 4.11 times less return on investment than Global Core. But when comparing it to its historical volatility, Intermediate Government Bond is 7.42 times less risky than Global Core. It trades about 0.13 of its potential returns per unit of risk. Global E Portfolio is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 1,515 in Global E Portfolio on December 31, 2024 and sell it today you would earn a total of 522.00 from holding Global E Portfolio or generate 34.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Intermediate Government Bond vs. Global E Portfolio
Performance |
| Timeline |
| Intermediate Government |
| Global E Portfolio |
Intermediate Government and Global Core Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Intermediate Government and Global Core
The main advantage of trading using opposite Intermediate Government and Global Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Intermediate Government position performs unexpectedly, Global Core 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 Global Core will offset losses from the drop in Global Core's long position.The idea behind Intermediate Government Bond and Global E Portfolio 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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