Correlation Between Short-term Government and Sustainable Equity
Can any of the company-specific risk be diversified away by investing in both Short-term Government and Sustainable Equity 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 Sustainable Equity 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 Sustainable Equity Fund, you can compare the effects of market volatilities on Short-term Government and Sustainable Equity 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 Sustainable Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short-term Government and Sustainable Equity.
Diversification Opportunities for Short-term Government and Sustainable Equity
-0.6 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Short-term and Sustainable is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Government Fund and Sustainable Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sustainable Equity 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 Sustainable Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sustainable Equity has no effect on the direction of Short-term Government i.e., Short-term Government and Sustainable Equity go up and down completely randomly.
Pair Corralation between Short-term Government and Sustainable Equity
Assuming the 90 days horizon Short Term Government Fund is expected to under-perform the Sustainable Equity. But the mutual fund apears to be less risky and, when comparing its historical volatility, Short Term Government Fund is 7.7 times less risky than Sustainable Equity. The mutual fund trades about -0.05 of its potential returns per unit of risk. The Sustainable Equity Fund is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest 5,544 in Sustainable Equity Fund on September 1, 2024 and sell it today you would earn a total of 310.00 from holding Sustainable Equity Fund or generate 5.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Short Term Government Fund vs. Sustainable Equity Fund
Performance |
| Timeline |
| Short Term Government |
| Sustainable Equity |
Short-term Government and Sustainable Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short-term Government and Sustainable Equity
The main advantage of trading using opposite Short-term Government and Sustainable Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short-term Government position performs unexpectedly, Sustainable Equity 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 Sustainable Equity will offset losses from the drop in Sustainable Equity's long position.| Short-term Government vs. Dunham Real Estate | Short-term Government vs. Virtus Real Estate | Short-term Government vs. Great West Real Estate | Short-term Government vs. Deutsche Real Estate |
| Sustainable Equity vs. Tax Managed Mid Small | Sustainable Equity vs. Qs Small Capitalization | Sustainable Equity vs. Baird Smallmid Cap | Sustainable Equity vs. Us Small 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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