Correlation Between Income Stock and Government Securities
Can any of the company-specific risk be diversified away by investing in both Income Stock 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 Income Stock and Government Securities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Income Stock Fund and Government Securities Fund, you can compare the effects of market volatilities on Income Stock 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 Income Stock with a short position of Government Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Stock and Government Securities.
Diversification Opportunities for Income Stock and Government Securities
-0.66 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Income and Government is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Income Stock 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 Income Stock 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 Income Stock 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 Income Stock i.e., Income Stock and Government Securities go up and down completely randomly.
Pair Corralation between Income Stock and Government Securities
Assuming the 90 days horizon Income Stock Fund is expected to generate 2.35 times more return on investment than Government Securities. However, Income Stock is 2.35 times more volatile than Government Securities Fund. It trades about 0.12 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 1,803 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 |
Income Stock Fund vs. Government Securities Fund
Performance |
| Timeline |
| Income Stock |
| Government Securities |
Income Stock and Government Securities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Income Stock and Government Securities
The main advantage of trading using opposite Income Stock and Government Securities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Income Stock 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.| Income Stock vs. Transamerica Financial Life | Income Stock vs. Gabelli Global Financial | Income Stock vs. John Hancock Financial | Income Stock vs. Mesirow Financial Small |
| 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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