Correlation Between Five Year and Micro E
Can any of the company-specific risk be diversified away by investing in both Five 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 Five 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 Five Year Treasury Note and Micro E mini Russell, you can compare the effects of market volatilities on Five 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 Five Year with a short position of Micro E. Check out your portfolio center. Please also check ongoing floating volatility patterns of Five Year and Micro E.
Diversification Opportunities for Five Year and Micro E
Poor diversification
The 3 months correlation between Five and Micro is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Five Year Treasury Note 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 Five 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 Five Year Treasury Note 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 Five Year i.e., Five Year and Micro E go up and down completely randomly.
Pair Corralation between Five Year and Micro E
Assuming the 90 days horizon Five Year is expected to generate 40.21 times less return on investment than Micro E. But when comparing it to its historical volatility, Five Year Treasury Note is 4.38 times less risky than Micro E. It trades about 0.01 of its potential returns per unit of risk. Micro E mini Russell is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 224,940 in Micro E mini Russell on November 3, 2024 and sell it today you would earn a total of 4,600 from holding Micro E mini Russell or generate 2.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Five Year Treasury Note vs. Micro E mini Russell
Performance |
| Timeline |
| Five Year Treasury |
| Micro E mini |
Five Year and Micro E Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Five Year and Micro E
The main advantage of trading using opposite Five Year and Micro E positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Five 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.| Five Year vs. Mini Dow Jones | Five Year vs. Gasoline RBOB | Five Year vs. Rough Rice Futures | Five Year vs. Platinum |
| Micro E vs. Soybean Futures | Micro E vs. E Mini SP 500 | Micro E vs. 30 Year Treasury | Micro E vs. 2 Year T Note Futures |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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