Correlation Between 30 Year and Micro E

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Can any of the company-specific risk be diversified away by investing in both 30 Year and Micro E 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 30 Year and Micro E into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 30 Year Treasury and Micro E mini Russell, you can compare the effects of market volatilities on 30 Year and Micro E 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 30 Year with a short position of Micro E. Check out your portfolio center. Please also check ongoing floating volatility patterns of 30 Year and Micro E.

Diversification Opportunities for 30 Year and Micro E

0.53
  Correlation Coefficient

Very weak diversification

The 3 months correlation between ZBUSD and Micro is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding 30 Year Treasury and Micro E mini Russell in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micro E mini and 30 Year 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 30 Year Treasury are associated (or correlated) with Micro E. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micro E mini has no effect on the direction of 30 Year i.e., 30 Year and Micro E go up and down completely randomly.

Pair Corralation between 30 Year and Micro E

Assuming the 90 days horizon 30 Year Treasury is expected to under-perform the Micro E. But the commodity apears to be less risky and, when comparing its historical volatility, 30 Year Treasury is 1.83 times less risky than Micro E. The commodity trades about -0.04 of its potential returns per unit of risk. The Micro E mini Russell is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  225,870  in Micro E mini Russell on October 22, 2024 and sell it today you would earn a total of  2,820  from holding Micro E mini Russell or generate 1.25% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

30 Year Treasury  vs.  Micro E mini Russell

 Performance 
       Timeline  
30 Year Treasury 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days 30 Year Treasury has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, 30 Year is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.
Micro E mini 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Micro E mini Russell are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Micro E is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

30 Year and Micro E Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with 30 Year and Micro E

The main advantage of trading using opposite 30 Year and Micro E positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 30 Year position performs unexpectedly, Micro E 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 Micro E will offset losses from the drop in Micro E's long position.
The idea behind 30 Year Treasury and Micro E mini Russell pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.

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