Correlation Between Us Government and Financial Services

Can any of the company-specific risk be diversified away by investing in both Us Government and Financial Services 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 Us Government and Financial Services into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Us Government Securities and Financial Services Fund, you can compare the effects of market volatilities on Us Government and Financial Services 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 Us Government with a short position of Financial Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Us Government and Financial Services.

Diversification Opportunities for Us Government and Financial Services

-0.18

Correlation Coefficient

Us Government  Financial Services

Good diversification

The 3 months correlation between AMUSX and Financial is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Us Government Securities and Financial Services Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services and Us Government 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 Us Government Securities are associated (or correlated) with Financial Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Services has no effect on the direction of Us Government i.e., Us Government and Financial Services go up and down completely randomly.

Pair Corralation between Us Government and Financial Services

Assuming the 90 days horizon Us Government Securities is expected to generate 0.3 times more return on investment than Financial Services. However, Us Government Securities is 3.29 times less risky than Financial Services. It trades about 0.15 of its potential returns per unit of risk. Financial Services Fund is currently generating about 0.01 per unit of risk. If you would invest  1,160  in Us Government Securities on December 25, 2024 and sell it today you would earn a total of  35.00  from holding Us Government Securities or generate 3.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Us Government Securities  vs.  Financial Services Fund

Us Government Securities

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Us Government Securities are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Us Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Financial Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Financial Services Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Financial Services is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Us Government and Financial Services

The main advantage of trading using opposite Us Government and Financial Services positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Us Government position performs unexpectedly, Financial Services 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 Financial Services will offset losses from the drop in Financial Services' long position.

The idea behind Us Government Securities and Financial Services Fund 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.