Correlation Between Long Term and Fixed Income

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Can any of the company-specific risk be diversified away by investing in both Long Term and Fixed Income 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 Long Term and Fixed Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Long Term Government Fund and Fixed Income Shares, you can compare the effects of market volatilities on Long Term and Fixed Income 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 Long Term with a short position of Fixed Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Long Term and Fixed Income.

Diversification Opportunities for Long Term and Fixed Income

0.93
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Long and Fixed is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Long Term Government Fund and Fixed Income Shares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fixed Income Shares and Long 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 Long Term Government Fund are associated (or correlated) with Fixed Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fixed Income Shares has no effect on the direction of Long Term i.e., Long Term and Fixed Income go up and down completely randomly.

Pair Corralation between Long Term and Fixed Income

Assuming the 90 days horizon Long Term is expected to generate 23.0 times less return on investment than Fixed Income. In addition to that, Long Term is 2.36 times more volatile than Fixed Income Shares. It trades about 0.0 of its total potential returns per unit of risk. Fixed Income Shares is currently generating about 0.08 per unit of volatility. If you would invest  812.00  in Fixed Income Shares on September 12, 2024 and sell it today you would earn a total of  95.00  from holding Fixed Income Shares or generate 11.7% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Long Term Government Fund  vs.  Fixed Income Shares

 Performance 
       Timeline  
Long Term Government 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Long Term Government Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Long Term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Fixed Income Shares 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Fixed Income Shares has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Fixed Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Long Term and Fixed Income Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Long Term and Fixed Income

The main advantage of trading using opposite Long Term and Fixed Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Long Term position performs unexpectedly, Fixed Income 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 Fixed Income will offset losses from the drop in Fixed Income's long position.
The idea behind Long Term Government Fund and Fixed Income Shares 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.
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.

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