Correlation Between Government Securities and Inverse Government
Can any of the company-specific risk be diversified away by investing in both Government Securities and Inverse Government 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 Inverse Government 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 Inverse Government Long, you can compare the effects of market volatilities on Government Securities and Inverse Government 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 Inverse Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Government Securities and Inverse Government.
Diversification Opportunities for Government Securities and Inverse Government
-0.96 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Government and Inverse is -0.96. Overlapping area represents the amount of risk that can be diversified away by holding Government Securities Fund and Inverse Government Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Government Long 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 Inverse Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Government Long has no effect on the direction of Government Securities i.e., Government Securities and Inverse Government go up and down completely randomly.
Pair Corralation between Government Securities and Inverse Government
Assuming the 90 days horizon Government Securities is expected to generate 2.82 times less return on investment than Inverse Government. But when comparing it to its historical volatility, Government Securities Fund is 3.09 times less risky than Inverse Government. It trades about 0.09 of its potential returns per unit of risk. Inverse Government Long is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 19,226 in Inverse Government Long on August 28, 2024 and sell it today you would earn a total of 300.00 from holding Inverse Government Long or generate 1.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Government Securities Fund vs. Inverse Government Long
Performance |
| Timeline |
| Government Securities |
| Inverse Government Long |
Government Securities and Inverse Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Government Securities and Inverse Government
The main advantage of trading using opposite Government Securities and Inverse Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Government Securities position performs unexpectedly, Inverse Government 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 Inverse Government will offset losses from the drop in Inverse Government's long position.| Government Securities vs. Capital Growth Fund | Government Securities vs. Emerging Markets Fund | Government Securities vs. High Income Fund | Government Securities vs. International Fund International |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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