Correlation Between High Income and Government Securities
Can any of the company-specific risk be diversified away by investing in both High Income 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 High Income and Government Securities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between High Income Fund and Government Securities Fund, you can compare the effects of market volatilities on High Income 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 High Income with a short position of Government Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of High Income and Government Securities.
Diversification Opportunities for High Income and Government Securities
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between High and Government is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding High Income 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 High Income 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 High Income 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 High Income i.e., High Income and Government Securities go up and down completely randomly.
Pair Corralation between High Income and Government Securities
Assuming the 90 days horizon High Income Fund is expected to generate 0.63 times more return on investment than Government Securities. However, High Income Fund is 1.58 times less risky than Government Securities. It trades about 0.4 of its potential returns per unit of risk. Government Securities Fund is currently generating about 0.04 per unit of risk. If you would invest 681.00 in High Income Fund on November 1, 2024 and sell it today you would earn a total of 9.00 from holding High Income Fund or generate 1.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.0% |
| Values | Daily Returns |
High Income Fund vs. Government Securities Fund
Performance |
| Timeline |
| High Income Fund |
| Government Securities |
High Income and Government Securities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with High Income and Government Securities
The main advantage of trading using opposite High Income and Government Securities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High Income 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.| High Income vs. Capital Growth Fund | High Income vs. Emerging Markets Fund | High Income vs. International Fund International | High Income vs. Growth Income Fund |
| 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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