Correlation Between Short Term and Long-term
Can any of the company-specific risk be diversified away by investing in both Short Term 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 Term 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 Term Fund C and Long Term Government Fund, you can compare the effects of market volatilities on Short Term 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 Term with a short position of Long-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Term and Long-term.
Diversification Opportunities for Short Term and Long-term
-0.86 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Short and Long-term is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Fund C 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 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 Short Term Fund C 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 Term i.e., Short Term and Long-term go up and down completely randomly.
Pair Corralation between Short Term and Long-term
Assuming the 90 days horizon Short Term is expected to generate 21.0 times less return on investment than Long-term. But when comparing it to its historical volatility, Short Term Fund C is 158.93 times less risky than Long-term. It trades about 0.25 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 1,490 in Long Term Government Fund on August 31, 2024 and sell it today you would lose (51.00) from holding Long Term Government Fund or give up 3.42% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Short Term Fund C vs. Long Term Government Fund
Performance |
| Timeline |
| Short Term Fund |
| Long Term Government |
Short Term and Long-term Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short Term and Long-term
The main advantage of trading using opposite Short Term and Long-term positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short Term 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 Term vs. Fidelity Series 1000 | Short Term vs. Dana Large Cap | Short Term vs. Dunham Large Cap | Short Term vs. Qs Large Cap |
| Long-term vs. Boston Partners Small | Long-term vs. Fpa Queens Road | Long-term vs. Hennessy Nerstone Mid | Long-term vs. Ab Discovery Value |
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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