Correlation Between Goldman Sachs and California Bond

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

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

Diversification Opportunities for Goldman Sachs and California Bond

0.7

Correlation Coefficient

Goldman Sachs  California Bond

Poor diversification

The 3 months correlation between Goldman and California is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Goldman Sachs Long and California Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Bond and Goldman Sachs 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 Goldman Sachs Long are associated (or correlated) with California Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Bond has no effect on the direction of Goldman Sachs i.e., Goldman Sachs and California Bond go up and down completely randomly.

Pair Corralation between Goldman Sachs and California Bond

Assuming the 90 days horizon Goldman Sachs Long is expected to generate 0.49 times more return on investment than California Bond. However, Goldman Sachs Long is 2.03 times less risky than California Bond. It trades about -0.43 of its potential returns per unit of risk. California Bond Fund is currently generating about -0.38 per unit of risk. If you would invest  801.00  in Goldman Sachs Long on September 28, 2024 and sell it today you would lose (9.00) from holding Goldman Sachs Long or give up 1.12% of portfolio value over 90 days.

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

Goldman Sachs Long  vs.  California Bond Fund

Goldman Sachs Long

Risk-Adjusted Performance

0 of 100

Very Weak

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

California Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Goldman Sachs and California Bond

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

The idea behind Goldman Sachs Long and California 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.