Correlation Between Government Long and Basic Materials
Can any of the company-specific risk be diversified away by investing in both Government Long and Basic Materials 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 Government Long and Basic Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Government Long Bond and Basic Materials Fund, you can compare the effects of market volatilities on Government Long and Basic Materials 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 Government Long with a short position of Basic Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Government Long and Basic Materials.
Diversification Opportunities for Government Long and Basic Materials
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Government and Basic is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Government Long Bond and Basic Materials Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Materials and Government Long 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 Government Long Bond are associated (or correlated) with Basic Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Materials has no effect on the direction of Government Long i.e., Government Long and Basic Materials go up and down completely randomly.
Pair Corralation between Government Long and Basic Materials
Assuming the 90 days horizon Government Long Bond is expected to under-perform the Basic Materials. But the mutual fund apears to be less risky and, when comparing its historical volatility, Government Long Bond is 1.02 times less risky than Basic Materials. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Basic Materials Fund is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 8,203 in Basic Materials Fund on October 20, 2024 and sell it today you would lose (615.00) from holding Basic Materials Fund or give up 7.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Government Long Bond vs. Basic Materials Fund
Performance |
| Timeline |
| Government Long Bond |
| Basic Materials |
Government Long and Basic Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Government Long and Basic Materials
The main advantage of trading using opposite Government Long and Basic Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Government Long position performs unexpectedly, Basic Materials 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 Basic Materials will offset losses from the drop in Basic Materials' long position.| Government Long vs. Pace High Yield | Government Long vs. Jpmorgan High Yield | Government Long vs. Calvert High Yield | Government Long vs. Voya High Yield |
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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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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