Correlation Between Government Securities and Capital Growth
Can any of the company-specific risk be diversified away by investing in both Government Securities and Capital Growth 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 Capital Growth 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 Capital Growth Fund, you can compare the effects of market volatilities on Government Securities and Capital Growth 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 Capital Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Government Securities and Capital Growth.
Diversification Opportunities for Government Securities and Capital Growth
-0.46 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Government and Capital is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Government Securities Fund and Capital Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Growth 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 Capital Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Growth has no effect on the direction of Government Securities i.e., Government Securities and Capital Growth go up and down completely randomly.
Pair Corralation between Government Securities and Capital Growth
Assuming the 90 days horizon Government Securities is expected to generate 4.45 times less return on investment than Capital Growth. But when comparing it to its historical volatility, Government Securities Fund is 2.54 times less risky than Capital Growth. It trades about 0.07 of its potential returns per unit of risk. Capital Growth Fund is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 1,182 in Capital Growth Fund on September 4, 2024 and sell it today you would earn a total of 305.00 from holding Capital Growth Fund or generate 25.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Government Securities Fund vs. Capital Growth Fund
Performance |
| Timeline |
| Government Securities |
| Capital Growth |
Government Securities and Capital Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Government Securities and Capital Growth
The main advantage of trading using opposite Government Securities and Capital Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Government Securities position performs unexpectedly, Capital Growth 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 Capital Growth will offset losses from the drop in Capital Growth's long position.| Government Securities vs. Franklin Government Money | Government Securities vs. Dws Government Money | Government Securities vs. General Money Market | Government Securities vs. Ashmore Emerging Markets |
| Capital Growth vs. Cref Inflation Linked Bond | Capital Growth vs. Arrow Managed Futures | Capital Growth vs. Asg Managed Futures | Capital Growth vs. Ab Bond Inflation |
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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