Correlation Between Short-term Government and Core Plus
Can any of the company-specific risk be diversified away by investing in both Short-term Government and Core Plus 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 Core Plus 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 Core Plus Fund, you can compare the effects of market volatilities on Short-term Government and Core Plus 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 Core Plus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short-term Government and Core Plus.
Diversification Opportunities for Short-term Government and Core Plus
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Short-term and Core is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Government Fund and Core Plus Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Plus Fund 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 Core Plus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Plus Fund has no effect on the direction of Short-term Government i.e., Short-term Government and Core Plus go up and down completely randomly.
Pair Corralation between Short-term Government and Core Plus
Assuming the 90 days horizon Short Term Government Fund is expected to generate 0.37 times more return on investment than Core Plus. However, Short Term Government Fund is 2.74 times less risky than Core Plus. It trades about -0.04 of its potential returns per unit of risk. Core Plus Fund is currently generating about -0.06 per unit of risk. If you would invest 909.00 in Short Term Government Fund on August 24, 2024 and sell it today you would lose (1.00) from holding Short Term Government Fund or give up 0.11% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Short Term Government Fund vs. Core Plus Fund
Performance |
| Timeline |
| Short Term Government |
| Core Plus Fund |
Short-term Government and Core Plus Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short-term Government and Core Plus
The main advantage of trading using opposite Short-term Government and Core Plus positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short-term Government position performs unexpectedly, Core Plus 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 Core Plus will offset losses from the drop in Core Plus' long position.| Short-term Government vs. Government Bond Fund | Short-term Government vs. Ginnie Mae Fund | Short-term Government vs. Inflation Adjusted Bond Fund | Short-term Government vs. Balanced Fund Investor |
| Core Plus vs. Diversified Bond Fund | Core Plus vs. High Yield Fund Investor | Core Plus vs. Government Bond Fund | Core Plus vs. Short Duration Inflation |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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