Correlation Between Rising Rates and Inverse Government
Can any of the company-specific risk be diversified away by investing in both Rising Rates and Inverse 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 Rising Rates and Inverse Government into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rising Rates Opportunity and Inverse Government Long, you can compare the effects of market volatilities on Rising Rates and Inverse 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 Rising Rates with a short position of Inverse Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rising Rates and Inverse Government.
Diversification Opportunities for Rising Rates and Inverse Government
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Rising and Inverse is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Rising Rates Opportunity and Inverse Government Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Government Long and Rising Rates 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 Rising Rates Opportunity are associated (or correlated) with Inverse Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Government Long has no effect on the direction of Rising Rates i.e., Rising Rates and Inverse Government go up and down completely randomly.
Pair Corralation between Rising Rates and Inverse Government
Assuming the 90 days horizon Rising Rates is expected to generate 5.21 times less return on investment than Inverse Government. But when comparing it to its historical volatility, Rising Rates Opportunity is 1.55 times less risky than Inverse Government. It trades about 0.03 of its potential returns per unit of risk. Inverse Government Long is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 18,535 in Inverse Government Long on October 23, 2024 and sell it today you would earn a total of 216.00 from holding Inverse Government Long or generate 1.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rising Rates Opportunity vs. Inverse Government Long
Performance |
| Timeline |
| Rising Rates Opportunity |
| Inverse Government Long |
Rising Rates and Inverse Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rising Rates and Inverse Government
The main advantage of trading using opposite Rising Rates and Inverse Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rising Rates position performs unexpectedly, Inverse 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 Inverse Government will offset losses from the drop in Inverse Government's long position.| Rising Rates vs. Vanguard Energy Index | Rising Rates vs. Oil Gas Ultrasector | Rising Rates vs. Adams Natural Resources | Rising Rates vs. Clearbridge Energy Mlp |
| Inverse Government vs. Virtus Nfj Large Cap | Inverse Government vs. Transamerica Large Cap | Inverse Government vs. Tax Managed Large Cap | Inverse Government vs. Qs Large Cap |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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