Correlation Between Government Bond and Core Plus

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

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

Diversification Opportunities for Government Bond and Core Plus

0.99

Correlation Coefficient

Government Bond  Core Plus

No risk reduction

The 3 months correlation between Government and Core is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Government Bond Fund and Core Plus Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Plus Fund and Government Bond 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 Government Bond Fund are associated (or correlated) with Core Plus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Plus Fund has no effect on the direction of Government Bond i.e., Government Bond and Core Plus go up and down completely randomly.

Pair Corralation between Government Bond and Core Plus

Assuming the 90 days horizon Government Bond Fund is expected to under-perform the Core Plus. But the mutual fund apears to be less risky and, when comparing its historical volatility, Government Bond Fund is 1.01 times less risky than Core Plus. The mutual fund trades about -0.09 of its potential returns per unit of risk. The Core Plus Fund is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  918.00  in Core Plus Fund on September 23, 2024 and sell it today you would lose (9.00) from holding Core Plus Fund or give up 0.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Government Bond Fund  vs.  Core Plus Fund

Government Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Core Plus Fund

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Government Bond and Core Plus

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

The idea behind Government Bond Fund and Core Plus 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.

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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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.