Correlation Between Short Duration and Long Term
Can any of the company-specific risk be diversified away by investing in both Short Duration and Long Term 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 Short Duration and Long Term into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Short Duration Income and Long Term Government Fund, you can compare the effects of market volatilities on Short Duration and Long Term 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 Short Duration with a short position of Long Term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Duration and Long Term.
Diversification Opportunities for Short Duration and Long Term
-0.64 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Short and Long is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Short Duration Income and Long Term Government Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Long Term Government and Short Duration 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 Short Duration Income are associated (or correlated) with Long Term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Long Term Government has no effect on the direction of Short Duration i.e., Short Duration and Long Term go up and down completely randomly.
Pair Corralation between Short Duration and Long Term
Assuming the 90 days horizon Short Duration is expected to generate 1.16 times less return on investment than Long Term. But when comparing it to its historical volatility, Short Duration Income is 7.83 times less risky than Long Term. It trades about 0.19 of its potential returns per unit of risk. Long Term Government Fund is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,351 in Long Term Government Fund on September 12, 2024 and sell it today you would earn a total of 99.00 from holding Long Term Government Fund or generate 7.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 79.39% |
| Values | Daily Returns |
Short Duration Income vs. Long Term Government Fund
Performance |
| Timeline |
| Short Duration Income |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Long Term Government |
Short Duration and Long Term Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short Duration and Long Term
The main advantage of trading using opposite Short Duration and Long Term positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short Duration position performs unexpectedly, Long Term 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 Long Term will offset losses from the drop in Long Term's long position.| Short Duration vs. Long Term Government Fund | Short Duration vs. Ridgeworth Seix Government | Short Duration vs. Lord Abbett Government | Short Duration vs. Franklin Adjustable Government |
| Long Term vs. Vanguard Long Term Treasury | Long Term vs. SCOR PK | Long Term vs. Morningstar Unconstrained Allocation | Long Term vs. Thrivent High Yield |
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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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