Correlation Between Government Bond and Inflation-adjusted

Can any of the company-specific risk be diversified away by investing in both Government Bond and Inflation-adjusted 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 Inflation-adjusted 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 Inflation Adjusted Bond Fund, you can compare the effects of market volatilities on Government Bond and Inflation-adjusted 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 Inflation-adjusted. Check out your portfolio center. Please also check ongoing floating volatility patterns of Government Bond and Inflation-adjusted.

Diversification Opportunities for Government Bond and Inflation-adjusted

0.91

Correlation Coefficient

Government Bond  Inflation-adjusted

Almost no diversification

The 3 months correlation between Government and Inflation-adjusted is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Government Bond Fund and Inflation Adjusted Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inflation Adjusted Bond 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 Inflation-adjusted. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inflation Adjusted Bond has no effect on the direction of Government Bond i.e., Government Bond and Inflation-adjusted go up and down completely randomly.

Pair Corralation between Government Bond and Inflation-adjusted

Assuming the 90 days horizon Government Bond Fund is expected to under-perform the Inflation-adjusted. In addition to that, Government Bond is 1.25 times more volatile than Inflation Adjusted Bond Fund. It trades about -0.07 of its total potential returns per unit of risk. Inflation Adjusted Bond Fund is currently generating about -0.05 per unit of volatility. If you would invest  1,049  in Inflation Adjusted Bond Fund on October 20, 2024 and sell it today you would lose (9.00) from holding Inflation Adjusted Bond Fund or give up 0.86% 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.  Inflation Adjusted Bond 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.

Inflation Adjusted Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inflation Adjusted Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Inflation-adjusted 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 Inflation-adjusted

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

The idea behind Government Bond Fund and Inflation Adjusted Bond 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.