Correlation Between Income Fund and Government Securities
Can any of the company-specific risk be diversified away by investing in both Income Fund 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 Fund 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 Fund Income and Government Securities Fund, you can compare the effects of market volatilities on Income Fund 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 Fund with a short position of Government Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Fund and Government Securities.
Diversification Opportunities for Income Fund and Government Securities
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Income and Government is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Income Fund Income 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 Fund 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 Fund Income 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 Fund i.e., Income Fund and Government Securities go up and down completely randomly.
Pair Corralation between Income Fund and Government Securities
Assuming the 90 days horizon Income Fund Income is expected to generate 1.08 times more return on investment than Government Securities. However, Income Fund is 1.08 times more volatile than Government Securities Fund. It trades about 0.09 of its potential returns per unit of risk. Government Securities Fund is currently generating about 0.06 per unit of risk. If you would invest 1,134 in Income Fund Income on November 3, 2024 and sell it today you would earn a total of 6.00 from holding Income Fund Income or generate 0.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Income Fund Income vs. Government Securities Fund
Performance |
| Timeline |
| Income Fund Income |
| Government Securities |
Income Fund and Government Securities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Income Fund and Government Securities
The main advantage of trading using opposite Income Fund and Government Securities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Income Fund 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 Fund vs. Franklin Lifesmart Retirement | Income Fund vs. Lifestyle Ii Moderate | Income Fund vs. American Funds Retirement | Income Fund vs. Dimensional Retirement Income |
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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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