Correlation Between Basic Materials and Inverse Government
Can any of the company-specific risk be diversified away by investing in both Basic Materials 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 Basic Materials and Inverse Government into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials Fund and Inverse Government Long, you can compare the effects of market volatilities on Basic Materials 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 Basic Materials with a short position of Inverse Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Inverse Government.
Diversification Opportunities for Basic Materials and Inverse Government
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Basic and Inverse is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Fund 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 Basic Materials 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 Basic Materials Fund 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 Basic Materials i.e., Basic Materials and Inverse Government go up and down completely randomly.
Pair Corralation between Basic Materials and Inverse Government
Assuming the 90 days horizon Basic Materials Fund is expected to under-perform the Inverse Government. But the mutual fund apears to be less risky and, when comparing its historical volatility, Basic Materials Fund is 1.15 times less risky than Inverse Government. The mutual fund trades about -0.08 of its potential returns per unit of risk. The Inverse Government Long is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest 19,049 in Inverse Government Long on September 12, 2024 and sell it today you would lose (185.00) from holding Inverse Government Long or give up 0.97% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Basic Materials Fund vs. Inverse Government Long
Performance |
| Timeline |
| Basic Materials |
| Inverse Government Long |
Basic Materials and Inverse Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Basic Materials and Inverse Government
The main advantage of trading using opposite Basic Materials and Inverse Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials 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.| Basic Materials vs. Energy Fund Class | Basic Materials vs. Energy Services Fund | Basic Materials vs. Health Care Fund | Basic Materials vs. Banking Fund Class |
| Inverse Government vs. SCOR PK | Inverse Government vs. Morningstar Unconstrained Allocation | Inverse Government vs. Via Renewables | Inverse Government vs. Bondbloxx ETF Trust |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
Other Complementary Tools
| Alpha Finder Use alpha and beta coefficients to find investment opportunities after accounting for the risk | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume | |
| Global Correlations Find global opportunities by holding instruments from different markets | |
| Portfolio Anywhere Track or share privately all of your investments from the convenience of any device | |
| Pattern Recognition Use different Pattern Recognition models to time the market across multiple global exchanges |