Correlation Between Capital Growth and Government Securities
Can any of the company-specific risk be diversified away by investing in both Capital Growth and Government Securities 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 Capital Growth and Government Securities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Capital Growth Fund and Government Securities Fund, you can compare the effects of market volatilities on Capital Growth and Government Securities 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 Capital Growth with a short position of Government Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Growth and Government Securities.
Diversification Opportunities for Capital Growth and Government Securities
-0.45 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Capital and Government is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Capital Growth Fund and Government Securities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Securities and Capital Growth 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 Capital Growth Fund are associated (or correlated) with Government Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Securities has no effect on the direction of Capital Growth i.e., Capital Growth and Government Securities go up and down completely randomly.
Pair Corralation between Capital Growth and Government Securities
Assuming the 90 days horizon Capital Growth Fund is expected to generate 2.57 times more return on investment than Government Securities. However, Capital Growth is 2.57 times more volatile than Government Securities Fund. It trades about 0.11 of its potential returns per unit of risk. Government Securities Fund is currently generating about 0.03 per unit of risk. If you would invest 1,224 in Capital Growth Fund on August 25, 2024 and sell it today you would earn a total of 242.00 from holding Capital Growth Fund or generate 19.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Capital Growth Fund vs. Government Securities Fund
Performance |
| Timeline |
| Capital Growth |
| Government Securities |
Capital Growth and Government Securities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital Growth and Government Securities
The main advantage of trading using opposite Capital Growth and Government Securities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Growth position performs unexpectedly, Government Securities 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 Government Securities will offset losses from the drop in Government Securities' long position.| Capital Growth vs. Alpsalerian Energy Infrastructure | Capital Growth vs. Icon Natural Resources | Capital Growth vs. Firsthand Alternative Energy | Capital Growth vs. Tortoise Energy Independence |
| Government Securities vs. Live Oak Health | Government Securities vs. Delaware Healthcare Fund | Government Securities vs. The Gabelli Healthcare | Government Securities vs. Fidelity Advisor Health |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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