Correlation Between New World and Us Government
Can any of the company-specific risk be diversified away by investing in both New World and Us 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 New World and Us Government into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New World Fund and Us Government Securities, you can compare the effects of market volatilities on New World and Us 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 New World with a short position of Us Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of New World and Us Government.
Diversification Opportunities for New World and Us Government
0.14 | Correlation Coefficient |
Average diversification
The 3 months correlation between New and USGFX is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding New World Fund and Us Government Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Government Securities and New World 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 New World Fund are associated (or correlated) with Us Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Government Securities has no effect on the direction of New World i.e., New World and Us Government go up and down completely randomly.
Pair Corralation between New World and Us Government
Assuming the 90 days horizon New World Fund is expected to under-perform the Us Government. In addition to that, New World is 1.99 times more volatile than Us Government Securities. It trades about -0.13 of its total potential returns per unit of risk. Us Government Securities is currently generating about 0.12 per unit of volatility. If you would invest 1,185 in Us Government Securities on September 2, 2024 and sell it today you would earn a total of 9.00 from holding Us Government Securities or generate 0.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
New World Fund vs. Us Government Securities
Performance |
| Timeline |
| New World Fund |
| Us Government Securities |
New World and Us Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New World and Us Government
The main advantage of trading using opposite New World and Us Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New World position performs unexpectedly, Us 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 Us Government will offset losses from the drop in Us Government's long position.| New World vs. Qs Large Cap | New World vs. Legg Mason Bw | New World vs. Fidelity Series 1000 | New World vs. Qs Large Cap |
| Us Government vs. Small Cap Stock | Us Government vs. Sentinel Small Pany | Us Government vs. Aqr Diversified Arbitrage | Us Government vs. Lord Abbett Diversified |
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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