Correlation Between 10 Year and 30 Year
Can any of the company-specific risk be diversified away by investing in both 10 Year and 30 Year 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 10 Year and 30 Year into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 10 Year T Note Futures and 30 Year Treasury, you can compare the effects of market volatilities on 10 Year and 30 Year 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 10 Year with a short position of 30 Year. Check out your portfolio center. Please also check ongoing floating volatility patterns of 10 Year and 30 Year.
Diversification Opportunities for 10 Year and 30 Year
No risk reduction
The 3 months correlation between ZNUSD and ZBUSD is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding 10 Year T Note Futures and 30 Year Treasury in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 30 Year Treasury and 10 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 10 Year T Note Futures are associated (or correlated) with 30 Year. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 30 Year Treasury has no effect on the direction of 10 Year i.e., 10 Year and 30 Year go up and down completely randomly.
Pair Corralation between 10 Year and 30 Year
Assuming the 90 days horizon 10 Year T Note Futures is expected to generate 0.57 times more return on investment than 30 Year. However, 10 Year T Note Futures is 1.75 times less risky than 30 Year. It trades about -0.01 of its potential returns per unit of risk. 30 Year Treasury is currently generating about -0.02 per unit of risk. If you would invest 11,359 in 10 Year T Note Futures on August 26, 2024 and sell it today you would lose (401.00) from holding 10 Year T Note Futures or give up 3.53% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.8% |
| Values | Daily Returns |
10 Year T Note Futures vs. 30 Year Treasury
Performance |
| Timeline |
| 10 Year T |
| 30 Year Treasury |
10 Year and 30 Year Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with 10 Year and 30 Year
The main advantage of trading using opposite 10 Year and 30 Year positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 10 Year position performs unexpectedly, 30 Year 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 Year will offset losses from the drop in 30 Year's long position.The idea behind 10 Year T Note Futures and 30 Year Treasury 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.| 30 Year vs. Corn Futures | 30 Year vs. Silver Futures | 30 Year vs. Orange Juice | 30 Year vs. Brent Crude Oil |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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