Correlation Between Short-term Bond and Government Securities
Can any of the company-specific risk be diversified away by investing in both Short-term Bond 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 Short-term Bond and Government Securities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Short Term Bond Fund and Government Securities Fund, you can compare the effects of market volatilities on Short-term Bond 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 Short-term Bond with a short position of Government Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short-term Bond and Government Securities.
Diversification Opportunities for Short-term Bond and Government Securities
0.23 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Short-term and Government is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Bond 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 Short-term Bond 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 Short Term Bond 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 Short-term Bond i.e., Short-term Bond and Government Securities go up and down completely randomly.
Pair Corralation between Short-term Bond and Government Securities
Assuming the 90 days horizon Short Term Bond Fund is expected to generate 0.39 times more return on investment than Government Securities. However, Short Term Bond Fund is 2.57 times less risky than Government Securities. It trades about 0.17 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 806.00 in Short Term Bond Fund on August 28, 2024 and sell it today you would earn a total of 102.00 from holding Short Term Bond Fund or generate 12.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Short Term Bond Fund vs. Government Securities Fund
Performance |
| Timeline |
| Short Term Bond |
| Government Securities |
Short-term Bond and Government Securities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short-term Bond and Government Securities
The main advantage of trading using opposite Short-term Bond and Government Securities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short-term Bond 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.| Short-term Bond vs. Capital Growth Fund | Short-term Bond vs. Emerging Markets Fund | Short-term Bond vs. High Income Fund | Short-term Bond vs. International Fund International |
| 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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