Correlation Between Ultra Short-term and Government Securities
Can any of the company-specific risk be diversified away by investing in both Ultra Short-term 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 Ultra Short-term and Government Securities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ultra Short Term Bond and Government Securities Fund, you can compare the effects of market volatilities on Ultra Short-term 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 Ultra Short-term with a short position of Government Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultra Short-term and Government Securities.
Diversification Opportunities for Ultra Short-term and Government Securities
-0.62 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Ultra and Government is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Short Term Bond and Government Securities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Securities and Ultra Short-term 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 Ultra Short Term Bond 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 Ultra Short-term i.e., Ultra Short-term and Government Securities go up and down completely randomly.
Pair Corralation between Ultra Short-term and Government Securities
Assuming the 90 days horizon Ultra Short Term Bond is expected to generate 0.32 times more return on investment than Government Securities. However, Ultra Short Term Bond is 3.1 times less risky than Government Securities. It trades about 0.22 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 892.00 in Ultra Short Term Bond on September 2, 2024 and sell it today you would earn a total of 117.00 from holding Ultra Short Term Bond or generate 13.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ultra Short Term Bond vs. Government Securities Fund
Performance |
| Timeline |
| Ultra Short Term |
| Government Securities |
Ultra Short-term and Government Securities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ultra Short-term and Government Securities
The main advantage of trading using opposite Ultra Short-term and Government Securities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ultra Short-term 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.| Ultra Short-term vs. Capital Growth Fund | Ultra Short-term vs. Emerging Markets Fund | Ultra Short-term vs. High Income Fund | Ultra Short-term vs. International Fund International |
| Government Securities vs. Capital Growth Fund | Government Securities vs. High Income Fund | Government Securities vs. International Fund International | Government Securities vs. Growth Income Fund |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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