Correlation Between Limited Term and Government Bond
Can any of the company-specific risk be diversified away by investing in both Limited Term and Government Bond 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 Limited Term and Government Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Limited Term Tax and Government Bond Fund, you can compare the effects of market volatilities on Limited Term and Government Bond 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 Limited Term with a short position of Government Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Limited Term and Government Bond.
Diversification Opportunities for Limited Term and Government Bond
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between LIMITED and Government is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Limited Term Tax and Government Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Bond and Limited Term 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 Limited Term Tax are associated (or correlated) with Government Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Bond has no effect on the direction of Limited Term i.e., Limited Term and Government Bond go up and down completely randomly.
Pair Corralation between Limited Term and Government Bond
Assuming the 90 days horizon Limited Term Tax is expected to generate 0.31 times more return on investment than Government Bond. However, Limited Term Tax is 3.26 times less risky than Government Bond. It trades about 0.09 of its potential returns per unit of risk. Government Bond Fund is currently generating about 0.02 per unit of risk. If you would invest 1,451 in Limited Term Tax on September 5, 2024 and sell it today you would earn a total of 94.00 from holding Limited Term Tax or generate 6.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Limited Term Tax vs. Government Bond Fund
Performance |
| Timeline |
| Limited Term Tax |
| Government Bond |
Limited Term and Government Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Limited Term and Government Bond
The main advantage of trading using opposite Limited Term and Government Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Limited Term position performs unexpectedly, Government Bond 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 Government Bond will offset losses from the drop in Government Bond's long position.| Limited Term vs. Tax Exempt Bond | Limited Term vs. Intermediate Bond Fund | Limited Term vs. American High Income Municipal | Limited Term vs. Us Government Securities |
| Government Bond vs. Multimanager Lifestyle Aggressive | Government Bond vs. Western Asset High | Government Bond vs. Gmo High Yield | Government Bond vs. Nuveen High Income |
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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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