Correlation Between Intermediate Government and Inverse Government
Can any of the company-specific risk be diversified away by investing in both Intermediate Government and Inverse 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 Inverse 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 Inverse Government Long, you can compare the effects of market volatilities on Intermediate Government and Inverse 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 Inverse Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate Government and Inverse Government.
Diversification Opportunities for Intermediate Government and Inverse Government
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Intermediate and Inverse is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Government Bond and Inverse Government Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Government Long 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 Inverse Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Government Long has no effect on the direction of Intermediate Government i.e., Intermediate Government and Inverse Government go up and down completely randomly.
Pair Corralation between Intermediate Government and Inverse Government
Assuming the 90 days horizon Intermediate Government is expected to generate 3.11 times less return on investment than Inverse Government. But when comparing it to its historical volatility, Intermediate Government Bond is 8.62 times less risky than Inverse Government. It trades about 0.16 of its potential returns per unit of risk. Inverse Government Long is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 16,839 in Inverse Government Long on October 20, 2024 and sell it today you would earn a total of 1,994 from holding Inverse Government Long or generate 11.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Intermediate Government Bond vs. Inverse Government Long
Performance |
| Timeline |
| Intermediate Government |
| Inverse Government Long |
Intermediate Government and Inverse Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Intermediate Government and Inverse Government
The main advantage of trading using opposite Intermediate Government and Inverse Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Intermediate Government position performs unexpectedly, Inverse 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 Inverse Government will offset losses from the drop in Inverse Government's long position.| Intermediate Government vs. Pabrai Wagons Institutional | Intermediate Government vs. Aam Select Income | Intermediate Government vs. Fmasx | Intermediate Government vs. Rational Dividend Capture |
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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