Correlation Between Government Securities and Income Stock
Can any of the company-specific risk be diversified away by investing in both Government Securities and Income Stock 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 Income Stock 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 Income Stock Fund, you can compare the effects of market volatilities on Government Securities and Income Stock 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 Income Stock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Government Securities and Income Stock.
Diversification Opportunities for Government Securities and Income Stock
-0.66 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Government and Income is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Government Securities Fund and Income Stock Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Income Stock 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 Income Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Income Stock has no effect on the direction of Government Securities i.e., Government Securities and Income Stock go up and down completely randomly.
Pair Corralation between Government Securities and Income Stock
Assuming the 90 days horizon Government Securities is expected to generate 9.92 times less return on investment than Income Stock. But when comparing it to its historical volatility, Government Securities Fund is 2.35 times less risky than Income Stock. It trades about 0.03 of its potential returns per unit of risk. Income Stock Fund is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 1,803 in Income Stock Fund on August 25, 2024 and sell it today you would earn a total of 372.00 from holding Income Stock Fund or generate 20.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Government Securities Fund vs. Income Stock Fund
Performance |
| Timeline |
| Government Securities |
| Income Stock |
Government Securities and Income Stock Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Government Securities and Income Stock
The main advantage of trading using opposite Government Securities and Income Stock positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Government Securities position performs unexpectedly, Income Stock 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 Income Stock will offset losses from the drop in Income Stock's long position.| Government Securities vs. Live Oak Health | Government Securities vs. Delaware Healthcare Fund | Government Securities vs. The Gabelli Healthcare | Government Securities vs. Fidelity Advisor Health |
| Income Stock vs. Transamerica Financial Life | Income Stock vs. Gabelli Global Financial | Income Stock vs. John Hancock Financial | Income Stock vs. Mesirow Financial Small |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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