Correlation Between Materials Portfolio and Government Securities

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

Diversification Opportunities for Materials Portfolio and Government Securities

0.54

Correlation Coefficient

Materials Portfolio  Government Securities

Very weak diversification

The 3 months correlation between Materials and Government is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Fidelity and Government Securities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Securities 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 Government Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Securities has no effect on the direction of Materials Portfolio i.e., Materials Portfolio and Government Securities go up and down completely randomly.

Pair Corralation between Materials Portfolio and Government Securities

Assuming the 90 days horizon Materials Portfolio Fidelity is expected to under-perform the Government Securities. In addition to that, Materials Portfolio is 4.53 times more volatile than Government Securities Fund. It trades about -0.18 of its total potential returns per unit of risk. Government Securities Fund is currently generating about -0.01 per unit of volatility. If you would invest  874.00  in Government Securities Fund on October 23, 2024 and sell it today you would lose (2.00) from holding Government Securities Fund or give up 0.23% of portfolio value over 90 days.

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

Materials Portfolio Fidelity  vs.  Government Securities 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.

Government Securities

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Materials Portfolio Fidelity and Government Securities 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.