Correlation Between 2 Year and 30 Day
Can any of the company-specific risk be diversified away by investing in both 2 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 2 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 2 Year T Note Futures and 30 Day Fed, you can compare the effects of market volatilities on 2 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 2 Year with a short position of 30 Day. Check out your portfolio center. Please also check ongoing floating volatility patterns of 2 Year and 30 Day.
Diversification Opportunities for 2 Year and 30 Day
Very good diversification
The 3 months correlation between ZTUSD and ZQUSD is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding 2 Year T Note Futures 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 2 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 2 Year T Note Futures 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 2 Year i.e., 2 Year and 30 Day go up and down completely randomly.
Pair Corralation between 2 Year and 30 Day
Assuming the 90 days horizon 2 Year T Note Futures is expected to generate 2.33 times more return on investment than 30 Day. However, 2 Year is 2.33 times more volatile than 30 Day Fed. It trades about 0.04 of its potential returns per unit of risk. 30 Day Fed is currently generating about 0.05 per unit of risk. If you would invest 10,121 in 2 Year T Note Futures on August 26, 2024 and sell it today you would earn a total of 130.00 from holding 2 Year T Note Futures or generate 1.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
2 Year T Note Futures vs. 30 Day Fed
Performance |
| Timeline |
| 2 Year T |
| 30 Day Fed |
2 Year and 30 Day Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with 2 Year and 30 Day
The main advantage of trading using opposite 2 Year and 30 Day positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 2 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.| 2 Year vs. 30 Year Treasury | 2 Year vs. 30 Day Fed | 2 Year vs. Class III Milk | 2 Year vs. 10 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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