Correlation Between Intermediate Government and Nationwide Government
Can any of the company-specific risk be diversified away by investing in both Intermediate Government and Nationwide 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 Intermediate Government and Nationwide Government 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 Nationwide Government Bond, you can compare the effects of market volatilities on Intermediate Government and Nationwide 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 Intermediate Government with a short position of Nationwide Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate Government and Nationwide Government.
Diversification Opportunities for Intermediate Government and Nationwide Government
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Intermediate and Nationwide is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Government Bond and Nationwide Government Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nationwide Government 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 Nationwide Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nationwide Government has no effect on the direction of Intermediate Government i.e., Intermediate Government and Nationwide Government go up and down completely randomly.
Pair Corralation between Intermediate Government and Nationwide Government
Assuming the 90 days horizon Intermediate Government Bond is expected to generate 2.87 times more return on investment than Nationwide Government. However, Intermediate Government is 2.87 times more volatile than Nationwide Government Bond. It trades about 0.19 of its potential returns per unit of risk. Nationwide Government Bond is currently generating about 0.5 per unit of risk. If you would invest 942.00 in Intermediate Government Bond on October 21, 2024 and sell it today you would earn a total of 4.00 from holding Intermediate Government Bond or generate 0.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Intermediate Government Bond vs. Nationwide Government Bond
Performance |
| Timeline |
| Intermediate Government |
| Nationwide Government |
Intermediate Government and Nationwide Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Intermediate Government and Nationwide Government
The main advantage of trading using opposite Intermediate Government and Nationwide Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Intermediate Government position performs unexpectedly, Nationwide 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 Nationwide Government will offset losses from the drop in Nationwide Government's long position.The idea behind Intermediate Government Bond and Nationwide Government Bond 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 Transaction History module to view history of all your transactions and understand their impact on performance.
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