Correlation Between Blue Chip and Government Securities
Can any of the company-specific risk be diversified away by investing in both Blue Chip 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 Blue Chip and Government Securities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Blue Chip Growth and Government Securities Fund, you can compare the effects of market volatilities on Blue Chip 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 Blue Chip with a short position of Government Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blue Chip and Government Securities.
Diversification Opportunities for Blue Chip and Government Securities
-0.8 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Blue and Government is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Blue Chip Growth and Government Securities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Securities and Blue Chip 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 Blue Chip Growth 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 Blue Chip i.e., Blue Chip and Government Securities go up and down completely randomly.
Pair Corralation between Blue Chip and Government Securities
Assuming the 90 days horizon Blue Chip Growth is expected to generate 3.25 times more return on investment than Government Securities. However, Blue Chip is 3.25 times more volatile than Government Securities Fund. It trades about 0.12 of its potential returns per unit of risk. Government Securities Fund is currently generating about 0.07 per unit of risk. If you would invest 1,909 in Blue Chip Growth on August 27, 2024 and sell it today you would earn a total of 55.00 from holding Blue Chip Growth or generate 2.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Blue Chip Growth vs. Government Securities Fund
Performance |
| Timeline |
| Blue Chip Growth |
| Government Securities |
Blue Chip and Government Securities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Blue Chip and Government Securities
The main advantage of trading using opposite Blue Chip and Government Securities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Blue Chip 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.| Blue Chip vs. Mid Cap Index | Blue Chip vs. Mid Cap Strategic | Blue Chip vs. Valic Company I | Blue Chip vs. Stock Index 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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