Correlation Between Intermediate Government and Balanced Allocation

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

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

Diversification Opportunities for Intermediate Government and Balanced Allocation

0.41

Correlation Coefficient

Intermediate Government  Balanced Allocation

Very weak diversification

The 3 months correlation between Intermediate and Balanced is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Government Bond and Balanced Allocation Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balanced Allocation and Intermediate 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 Intermediate Government Bond are associated (or correlated) with Balanced Allocation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balanced Allocation has no effect on the direction of Intermediate Government i.e., Intermediate Government and Balanced Allocation go up and down completely randomly.

Pair Corralation between Intermediate Government and Balanced Allocation

Assuming the 90 days horizon Intermediate Government Bond is expected to generate 0.25 times more return on investment than Balanced Allocation. However, Intermediate Government Bond is 4.04 times less risky than Balanced Allocation. It trades about 0.25 of its potential returns per unit of risk. Balanced Allocation Fund is currently generating about 0.03 per unit of risk. If you would invest  936.00  in Intermediate Government Bond on December 24, 2024 and sell it today you would earn a total of  15.00  from holding Intermediate Government Bond or generate 1.6% return on investment over 90 days.

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

Intermediate Government Bond  vs.  Balanced Allocation Fund

Intermediate Government

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Intermediate Government Bond are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Intermediate Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Balanced Allocation

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Balanced Allocation Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Balanced Allocation is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Intermediate Government and Balanced Allocation

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

The idea behind Intermediate Government Bond and Balanced Allocation 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.