Correlation Between Short-term Government and Equity Growth
Can any of the company-specific risk be diversified away by investing in both Short-term Government and Equity Growth 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 Government and Equity Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Short Term Government Fund and Equity Growth Fund, you can compare the effects of market volatilities on Short-term Government and Equity Growth 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 Government with a short position of Equity Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short-term Government and Equity Growth.
Diversification Opportunities for Short-term Government and Equity Growth
0.43 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Short-term and Equity is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Government Fund and Equity Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth and Short-term Government 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 Government Fund are associated (or correlated) with Equity Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth has no effect on the direction of Short-term Government i.e., Short-term Government and Equity Growth go up and down completely randomly.
Pair Corralation between Short-term Government and Equity Growth
Assuming the 90 days horizon Short-term Government is expected to generate 27.78 times less return on investment than Equity Growth. But when comparing it to its historical volatility, Short Term Government Fund is 8.87 times less risky than Equity Growth. It trades about 0.06 of its potential returns per unit of risk. Equity Growth Fund is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 3,364 in Equity Growth Fund on November 3, 2024 and sell it today you would earn a total of 105.00 from holding Equity Growth Fund or generate 3.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Short Term Government Fund vs. Equity Growth Fund
Performance |
| Timeline |
| Short Term Government |
| Equity Growth |
Short-term Government and Equity Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short-term Government and Equity Growth
The main advantage of trading using opposite Short-term Government and Equity Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short-term Government position performs unexpectedly, Equity Growth 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 Equity Growth will offset losses from the drop in Equity Growth's long position.| Short-term Government vs. Gmo Quality Fund | Short-term Government vs. Diversified Income Fund | Short-term Government vs. Tax Managed Mid Small | Short-term Government vs. Lord Abbett Diversified |
| Equity Growth vs. Mid Cap Value | Equity Growth vs. Income Growth Fund | Equity Growth vs. Emerging Markets Fund | Equity Growth vs. Diversified Bond Fund |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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