Correlation Between Inflation-protected and Intermediate Government
Can any of the company-specific risk be diversified away by investing in both Inflation-protected and Intermediate 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 Inflation-protected and Intermediate Government into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Inflation Protected Bond Fund and Intermediate Government Bond, you can compare the effects of market volatilities on Inflation-protected and Intermediate 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 Inflation-protected with a short position of Intermediate Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inflation-protected and Intermediate Government.
Diversification Opportunities for Inflation-protected and Intermediate Government
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Inflation-protected and Intermediate is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Inflation Protected Bond Fund and Intermediate Government Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Government and Inflation-protected 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 Inflation Protected Bond Fund are associated (or correlated) with Intermediate Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Government has no effect on the direction of Inflation-protected i.e., Inflation-protected and Intermediate Government go up and down completely randomly.
Pair Corralation between Inflation-protected and Intermediate Government
Assuming the 90 days horizon Inflation Protected Bond Fund is expected to under-perform the Intermediate Government. In addition to that, Inflation-protected is 7.68 times more volatile than Intermediate Government Bond. It trades about -0.28 of its total potential returns per unit of risk. Intermediate Government Bond is currently generating about -0.27 per unit of volatility. If you would invest 947.00 in Intermediate Government Bond on October 17, 2024 and sell it today you would lose (4.00) from holding Intermediate Government Bond or give up 0.42% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.0% |
| Values | Daily Returns |
Inflation Protected Bond Fund vs. Intermediate Government Bond
Performance |
| Timeline |
| Inflation Protected |
| Intermediate Government |
Inflation-protected and Intermediate Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Inflation-protected and Intermediate Government
The main advantage of trading using opposite Inflation-protected and Intermediate Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inflation-protected position performs unexpectedly, Intermediate 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 Intermediate Government will offset losses from the drop in Intermediate Government's long position.| Inflation-protected vs. Mid Cap Growth | Inflation-protected vs. Artisan Small Cap | Inflation-protected vs. Tfa Alphagen Growth | Inflation-protected vs. T Rowe Price |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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