Correlation Between Five Year and 30 Day
Can any of the company-specific risk be diversified away by investing in both Five Year and 30 Day 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 30 Day 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 30 Day Fed, you can compare the effects of market volatilities on Five Year and 30 Day 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 30 Day. Check out your portfolio center. Please also check ongoing floating volatility patterns of Five Year and 30 Day.
Diversification Opportunities for Five Year and 30 Day
Pay attention - limited upside
The 3 months correlation between Five and ZQUSD is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Five Year Treasury Note and 30 Day Fed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 30 Day Fed 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 30 Day. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 30 Day Fed has no effect on the direction of Five Year i.e., Five Year and 30 Day go up and down completely randomly.
Pair Corralation between Five Year and 30 Day
Assuming the 90 days horizon Five Year Treasury Note is expected to generate 4.06 times more return on investment than 30 Day. However, Five Year is 4.06 times more volatile than 30 Day Fed. It trades about 0.08 of its potential returns per unit of risk. 30 Day Fed is currently generating about 0.01 per unit of risk. If you would invest 10,723 in Five Year Treasury Note on September 1, 2024 and sell it today you would earn a total of 37.00 from holding Five Year Treasury Note or generate 0.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Five Year Treasury Note vs. 30 Day Fed
Performance |
| Timeline |
| Five Year Treasury |
| 30 Day Fed |
Five Year and 30 Day Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Five Year and 30 Day
The main advantage of trading using opposite Five Year and 30 Day positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Five Year position performs unexpectedly, 30 Day 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 30 Day will offset losses from the drop in 30 Day's long position.| Five Year vs. Cocoa | Five Year vs. E Mini SP 500 | Five Year vs. Aluminum Futures | Five Year vs. Live Cattle 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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