Correlation Between Government Securities and Goldman Sachs
Can any of the company-specific risk be diversified away by investing in both Government Securities and Goldman Sachs 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 Government Securities and Goldman Sachs into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Government Securities Fund and Goldman Sachs Global, you can compare the effects of market volatilities on Government Securities and Goldman Sachs 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 Government Securities with a short position of Goldman Sachs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Government Securities and Goldman Sachs.
Diversification Opportunities for Government Securities and Goldman Sachs
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Government and Goldman is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Government Securities Fund and Goldman Sachs Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs Global and Government Securities 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 Government Securities Fund are associated (or correlated) with Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs Global has no effect on the direction of Government Securities i.e., Government Securities and Goldman Sachs go up and down completely randomly.
Pair Corralation between Government Securities and Goldman Sachs
Assuming the 90 days horizon Government Securities is expected to generate 1.49 times less return on investment than Goldman Sachs. In addition to that, Government Securities is 1.12 times more volatile than Goldman Sachs Global. It trades about 0.05 of its total potential returns per unit of risk. Goldman Sachs Global is currently generating about 0.09 per unit of volatility. If you would invest 1,068 in Goldman Sachs Global on September 12, 2024 and sell it today you would earn a total of 96.00 from holding Goldman Sachs Global or generate 8.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Government Securities Fund vs. Goldman Sachs Global
Performance |
| Timeline |
| Government Securities |
| Goldman Sachs Global |
Government Securities and Goldman Sachs Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Government Securities and Goldman Sachs
The main advantage of trading using opposite Government Securities and Goldman Sachs positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Government Securities position performs unexpectedly, Goldman Sachs 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 Goldman Sachs will offset losses from the drop in Goldman Sachs' long position.The idea behind Government Securities Fund and Goldman Sachs Global pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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