Correlation Between Materials Portfolio and Short-term Government

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

By analyzing existing cross correlation between Materials Portfolio Fidelity and Short Term Government Fund, you can compare the effects of market volatilities on Materials Portfolio and Short-term Government 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 Materials Portfolio with a short position of Short-term Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Portfolio and Short-term Government.

Diversification Opportunities for Materials Portfolio and Short-term Government

0.35

Correlation Coefficient

Materials Portfolio  Short-term Government

Weak diversification

The 3 months correlation between Materials and Short-term is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Fidelity and Short Term Government Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Government and Materials Portfolio 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 Materials Portfolio Fidelity are associated (or correlated) with Short-term Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Government has no effect on the direction of Materials Portfolio i.e., Materials Portfolio and Short-term Government go up and down completely randomly.

Pair Corralation between Materials Portfolio and Short-term Government

Assuming the 90 days horizon Materials Portfolio Fidelity is expected to under-perform the Short-term Government. In addition to that, Materials Portfolio is 6.64 times more volatile than Short Term Government Fund. It trades about -0.01 of its total potential returns per unit of risk. Short Term Government Fund is currently generating about 0.06 per unit of volatility. If you would invest  860.00  in Short Term Government Fund on October 7, 2024 and sell it today you would earn a total of  45.00  from holding Short Term Government Fund or generate 5.23% return on investment over 90 days.

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

Materials Portfolio Fidelity  vs.  Short Term Government Fund

Materials Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Materials Portfolio Fidelity has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Short Term Government

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Materials Portfolio and Short-term Government

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

The idea behind Materials Portfolio Fidelity and Short Term Government 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 Global Correlations module to find global opportunities by holding instruments from different markets.