Correlation Between Us Government and Money Market
Can any of the company-specific risk be diversified away by investing in both Us Government and Money Market 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 Us Government and Money Market into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Us Government Securities and Money Market Obligations, you can compare the effects of market volatilities on Us Government and Money Market 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 Us Government with a short position of Money Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of Us Government and Money Market.
Diversification Opportunities for Us Government and Money Market
-0.77 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between USGFX and Money is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Us Government Securities and Money Market Obligations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Money Market Obligations and Us Government 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 Us Government Securities are associated (or correlated) with Money Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Money Market Obligations has no effect on the direction of Us Government i.e., Us Government and Money Market go up and down completely randomly.
Pair Corralation between Us Government and Money Market
Assuming the 90 days horizon Us Government is expected to generate 81.63 times less return on investment than Money Market. But when comparing it to its historical volatility, Us Government Securities is 41.08 times less risky than Money Market. It trades about 0.02 of its potential returns per unit of risk. Money Market Obligations is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 91.00 in Money Market Obligations on September 3, 2024 and sell it today you would earn a total of 9.00 from holding Money Market Obligations or generate 9.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Us Government Securities vs. Money Market Obligations
Performance |
| Timeline |
| Us Government Securities |
| Money Market Obligations |
Us Government and Money Market Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Us Government and Money Market
The main advantage of trading using opposite Us Government and Money Market positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Us Government position performs unexpectedly, Money Market 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 Money Market will offset losses from the drop in Money Market's long position.| Us Government vs. Aig Government Money | Us Government vs. John Hancock Government | Us Government vs. Fidelity Series Government | Us Government vs. Us Government Securities |
| Money Market vs. Vanguard Total Stock | Money Market vs. Vanguard 500 Index | Money Market vs. Vanguard Total Stock | Money Market vs. Vanguard Total Stock |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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